In an attempt to stimulate the housing market George Bush will be signing into law the First-Time Homebuyer Tax Credit. This tax credit will be available for the purchase of a principal residence for any first time homebuyer. The maximum amount of the credit will be $7500. The $7500 credit will be available for your home purchase if it was purchased on or after April 8, 2008 and before July 1, 2009.
When I purchased my home 3 years ago this money would have been handy to help make ends meet as I transitioned from renting into home ownership. It would have also helped fund the many projects I took on around the home.
A big aftermath of your home purchase will be to make the home yours, and this tax credit will make it very easy for you to do so.
Disclaimer: Obviously I am not a lawyer, nor an accountant so please contact a professional for any specific questions you may have. (I know you know that, but I feel better saying it.)
The Basics
Who qualifies for the tax credit?
Only first-time homebuyers are eligible for the credit. A first-time homebuyer is defined as an individual who has not had an ownership interest in a principal residence in the previous three years. The 3-year period is measured from the date of purchase.
Is there an income restriction?
Yes. The income restriction is based on the tax filing status of the tax return the homebuyer files. Individuals who are filing Single are eligible if their adjusted gross income is no more than $75,000. Individuals who file a Joint return may have an income of $150,000 or less.
Is the amount of the credit tied to the price of the home?
Yes. The credit is for 10 percent of the cost of the home, up to the limit of $7500. A minimum purchase price of $75,000 will max out your tax credit.
What constitutes a “principal residence?”
A principal residence is the home where you spend most of your time. The term includes single-family homes, condos, townhouses or any similar type of housing.
Are there restrictions on the location of the property?
Yes. Any eligible property must be located in the United States.
Why is the credit referred to as an interest-free loan?
Unlike some other tax credits, this incentive must be paid back. A homebuyer will be required to repay the tax credit back over the course of 15 years. If you qualify for the full $7500 credit you will repay $502.50 each year. There are no interest charges and the repayment will be deducted from your tax refund each year.
How do I apply for the credit?
There is no application or approval process. Eligible homebuyers will claim the credit on the appropriate IRS Form 1040 tax return.
Repaying the Credit
What are the terms for repayment?
The credit amount is repaid in increments of 6.67% of the credit amount over 15 years. For homebuyers who take the full $7500 credit, the repayment will be $502.50 per year. If you claim less than the full $7500 the 15-year repayment will be based upon the 6.67% of their credit each year. For example, a homebuyer who claims a credit of $6000 will repay $400.20 per year ($6000 x .0667).
When do I make the payments?
Payments for credits claimed on your 2008 tax return will go into effect for the 2010 tax year. Payments for credits claimed on your 2009 tax return will go into effect for the 2011 tax year.
What if I sell my home before the 15-year repayment period is complete?
When you sell your home, any tax-credit that has not been repaid will be due in the year of the sale. For example, if you still owed $4000 in repayments and realized $20,000 of proceeds from the sale, the $20,000 would be reduced to $16,000 and the $4000 will be remitted to the IRS.
What if there’s very little gain on the sale and the proceeds won’t cover the repayment amount?
If the proceeds for the sale of your home don’t cover the amount to be repaid to the IRS, part of the liability is forgiven. For example, if you still owed $4000 but your gain on the sale was only $3500, then you would not be required to repay the IRS the $500 shortfall.
Are there any exceptions to the repayment rules?
Yes. If you die before the credit has been repaid in full, then any balance that remains is disregarded. Special rules are provided in the case of divorce as well in the case of involuntary conversion (example: the property is destroyed in a natural disaster or subject to condemnation by eminent domain.)
If you have any questions about buying your first home or you would like to start the process, please get in touch so you can take advantage of this suprising initiative.
PHONE: (715) 572-8372
My name is Adam Holberg and I’m a Realtor with First Weber of Wisconsin Rapids. This website is designed to inform and help bring conversation to a topic I love, real estate.