First-time Home Buyer 7500 Tax Credit in a Nutshell ?

By
Real Estate Agent with World Impact Real Estate

First-time home buyers -the government enacted a benefit to help you make your first home purchase? The incentive gives first time home buyers a federal income tax credit up to $7,500. Part of the "Housing and Economic Recovery Act of 2008″, creates a temporary, federal tax credit to provide incentive for first-time home buyers to purchase a home. 

 Rob Dietz, economist for the National Association of Home Builders (NAHB) points out, the effects of the credit may extend far beyond the first-time home buyer; as first-time home buyers purchase homes, many home sellers will be able to move up and invest their sales profits into new homes as well.

Since the money must eventually be paid back, the tax credit essentially acts as a no-interest loan that reduces your tax liability for the year it is claimed.  For instance, home buyers who close on a new home purchase in 2008 (after April 9) can claim the credit on their 2008 tax return.   If their tax liability for the year is $5,000, applying the $7,500 tax credit would cover their tax bill and provide a $2,500 refund.  Any taxpayers already due a refund would still receive the full amount, plus the $7,500 tax credit for buying a home.

First-time home buyers who claim the tax credit are expected to begin repayment starting in the second tax year after they close on their home and continue the pro-rata payback on their federal taxes for a 15-year period.  For home buyers who claim the full $7,500 credit, the payments would amount to $500 a year.

If the buyer sells the home before the 15-year period, the remaining credit would be due from whatever profit was made on the sale.  In cases where profits from the sale were less than what was owed for the credit repayment, the remainder would be forgiven.

Consider this illustration given by the NAHB: at 7% interest, a $7,500 loan would cost the borrower about $4,200 in interest over a 15-year period.  To finance the $7,500 through your 30-year mortgage at a 7% interest rate, a homeowner would pay $8,100 in interest over the life of the loan.  If you have already closed on a new home since April 9, 2008, the tax credit is retroactive back to that date, so you may be eligible to take the tax credit this year.

Here are some quick facts to determine if you qualify for the first-time home-buyers tax credit:

First Time Home Buyers - to be eligible, an individual must not have owned a primary home for the past three years, but may have owned a home prior to that.

Taypayers - U.S. citizens and resident aliens who file income taxes qualify for the tax credit.  Non-resident aliens are not eligible.

Income Range - to qualify for a full tax credit of $7,500 (or 10% of the cost of the home), someone filing their taxes as single or head of household can earn no more than $75,000.  Couples who file a joint return must earn $150,000 or less.

Individuals whose incomes fall between $75,001 and $94,999, or married couples who file jointly with incomes from $150,001 and $169,999, are still eligible for partial credit.

Taypayers earning more than $95,000 (single) or $170,000 (joint) are not eligible for this credit.

What do you have to do to claim the tax credit? If you meet the criteria, you have to do is request the credit on either your 2008 or 2009 federal tax return that will be amended for that purpose. 

 Home buyers who close in 2008 can take the credit on their 2008 return.  First-time home buyers who purchase a new home in 2009 before the July 1 cut-off can choose to file an amended 2008 return or request the credit on their 2009 tax return. Please not this is not tax advise. consult your on tax person for all the details of the bill and how it relates to you.

Have great day

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Re-Blogged 2 times:

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Topic:
Home Buying
Location:
Alabama Mobile County Mobile
Groups:
Keller Williams 'Rainers
Tags:
7500 tax credit for first time home buyers

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Rainer
5,463
Brooks Conkle
ForeFront Real Estate LLC - Mobile, AL

Is this the same tax credit that the Mobile Housing Board helps others get?  If it is, I don't think that they currently have funds to provide for this.  If it's not, how specifically do you get this credit?

Oct 30, 2008 12:49 PM #1
Ambassador
1,555,894
Christine Donovan
Donovan Blatt Realty - Costa Mesa, CA
Broker/Attorney 800-610-7253 DRE01267479 - Costa M

It's a strange amalgamation of tax credit and interest free loan, isn't it?  It seems to me that many people are still unaware of this.

Nov 09, 2008 11:15 AM #2
Rainer
5,463
Brooks Conkle
ForeFront Real Estate LLC - Mobile, AL

After doing a little digging, I found the source of the credit/loan.

 

http://www.federalhousingtaxcredit.com/index.html

 

It's more of an interest free loan than that you pay over 15 years. Still an awesome deal. Anyone interested, it's got to be your first home, you have to make less than $75,000 and the credit expires June 30, 2009.

Nov 09, 2008 03:32 PM #3
Rainer
2,389
Deepa Rajan
Dauphin Realty - Mobile, AL

Wonderful information on the $7,500. It one thing to expalin it to someone and its another to just let them read it themselves. Thank you.

I will recommend this blog to others who ask me about the tax credit for first timers.

Deepa

Dec 06, 2008 09:18 AM #4
Ambassador
612,389
Janna Scharf
Keller Williams Realty Coeur d'Alene - Coeur d'Alene, ID
Coeur d'Alene Real Estate Pro

Thank you for breaking this down into an explanation that everyone can understand.  I wish more buyers were taking advantage of this program.

Dec 06, 2008 09:59 AM #5
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Gena Bolton

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