If you buy a home between April 9, 2008, through June 30, 2009, you could be eligible for as much as a $7,500 tax credit. This new incentive was approved by George Bush as part of the housing reform bill, making now a better time to buy a home.
If you have not owned a house during the past three years and can close before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).
Here's a quick overview of how this new credit will work for you:
Why it was implemented: To jump-start housing sales and exhaust unsold real estate inventories, Congress is offering tax credits to pull in new buyers. Within the designated time period, buy any house--regardless of it's age, location, condition, or price and the IRS will cut up to $7,500 off your tax bill for either this year or next. For example, if you're an eligible buyer this year and you owe the IRS $4,000 on your total 2008 income tax bill, your $7,500 tax credit could wipe out everything you owe plus get you a $3,500 refund. The new tax credit is what the government calls "refundable": If your tax bill is less than the credit amount, you get the difference back from the Treasury.
How can you qualify: Do you own a home? If so, you're not eligible for the credit. Did you sell your home more than three years ago and now rent? You are eligible. You're also eligible if you have never owned a home. Close on a house before June 30, and you can claim a credit of up to 10 percent of the purchase price of the property, up to $7,500. If your adjusted gross income exceeds $150,000 ($75,000 if you're single), the credit maximum begins to adjust down. You cannot claim the credit if you are a nonresident alien, financed the property using a state or local housing agency's tax-exempt bond mortgage, or do not plan to use the house as your principal residence. Plus, buyers who use the District's first-time-buyer credit program cannot double-dip and use the new federal credit too.
Do you have to pay it back: Unlike some other tax credits, this one requires beneficiaries to repay the credit. Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro rata repayments to the government on their federal filings. Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year. If you sell the house before the end of the repayment period and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds. If you have a net gain, the "recapture" cannot exceed the amount of your gain. In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.
Simply put--the new tax credit is very much like an interest-free loan for up to $7,500. You pay only the principal back over time. For more information about the tax credit, go to www.federalhousingtaxcredit.com.