 In addition to low interest rates and various tax advantages, first-time home buyers now have another powerful financial motive to leave the fence and take advantage of their unique opportunity in home purchasing.
The Housing and Economic Recovery Act of 2008 — which was passed by the Congress on July 26 and signed by President Bush on July 30 — allows first-time home buyers to take a $7,500 tax credit from the purchase of a single-family home, townhome or condominium apartment.
The temporary first-time home buyer tax credit operates like a zero-interest loan, but is called a tax credit because it operates through the tax code and is administered by the IRS. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale; however, the home owner does not have to begin making repayments on the credit until two years after the credit is claimed.
The credit is refundable, which means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. Typically this involves the government sending the taxpayer a check for a portion or even all of the amount of the refundable tax credit. For example, if a qualified home buyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that taxpayer qualified for the $7,500 home buyer tax credit. As a result, the taxpayer would receive a check for $6,500 ($7,500 minus the $1,000 owed).[1]
Any home buyer who has not owned a home during the past three years and is a U.S. citizen who files taxes is eligible to participate in this program. Single or head-of-household filers can claim the full $7,500 credit if their income is less than $75,000. For married couples filing a joint return, the income limit doubles to $150,000. For a list of frequently asked questions on the government’s new tax credit, visit www.federalhousingtaxcredit.com.
Potential new home owners should act fast in order to experience this opportunity of a lifetime! The credit is offered for a limited time, as it expires June 30, 2009. Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible.
[1] www.federalhousingtaxcredit.com
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