The Housing and Economic Recovery Act passed by Congress and signed into law by President Bush , contains a provision for a $7500 tax credit for first-time home buyers. The law defines a first-time home buyer as someone who has not owned a home in the past three years. As always, this law applies to any owner-occupied property up to four units in size.
According to Dean Schiffler of Burnet Home Loans, home buyers who file as single head of household taxpayers can claim the full $7500 credit if their annual gross income is less than $75,000. For married couples, the full credit may be claimed if their annual gross income is less than $150,000.
There is some wiggle room. Single taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time buyer tax credit. Married couples who earn between $150,000 and $170,000 are also eligible for the credit.
First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. The purchase of the home must close in this window of time.
The tax credit is refundable. This means if you owe taxes, they would be deducted from this $7500 credit. On the other hand, if you are due a refund, the $7500 would be added to the total.
Buyers can take the tax credit in their 2008 or 2009 tax refund. If the home was purchased in 2008, the credit is taken on your 2008 tax return. If you buy in 2009, you may take the credit on your 2008 or your 2009 tax return.
This program is not limited to areas plagued by high foreclosures. All homes will qualify, provided it will be used as a principal residence and the buyer has not owned a home in the prior three years.
Again, there’s a catch. The tax credit essentially serves as an interest-free loan to be repaid over 15 years. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the home owner sold the home, then the remaining credit would be due from the profit of the sale.
If there was insufficient profit, then the remaining credit payback would be forgiven.
Overall, it could be a terrific incentive to buy now; especially before the down payment assistance programs are eliminated.