One of the most exciting new provision of the Housing and Economic Recovery Act of 2008 is the Fist Time Homebuyer Tax Credit. The credit is designed to encourage first time home buyers to go ahead and make their first purchase.
Things To Keep In MindThe credit is available for homes purchased between April 9, 2008 and July 1,2009
The credit amounts to 10% of the purchase price of the home not to exceed $7,500
A first time home buyer is defined as someone who has not owned a home in the last three years.
Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
The tax credit works like an interest free loan and must be repaid over a 15 year period.
How Does The Tax Credit Work?A tax credit is a special provision that reduces the income tax liability on a dollar for dollar basis. When filing a tax return, you must include income items, deductions items and the number of exemptions, among other things, to figure your total tax liability. If your total tax liability end up being $7,500, and you qualify for the full $7,500 tax credit, this credit would be applied and would wipe out all of tax due. If yur employer had already deducted the $7,500 from your pay checks throughout the year, you would receive a tax refund of $ 7,500.
Does This Credit Has To Be Repaid?Yes, the credit does have to be reapid, so it is really more like an interest free loan. Home buyers will be required to repay the credit to the government, without interest over 15 years ow when they sell the house, if theres is sufficient capital gain from the sale. For example, a homebuyer claiming $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax reeturn, a $500 payment is not due until the 2010 tax return is filed. If the homeowner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.
For more information on this tax credit or other changes resulting from the Housing and Recovery Act of 2008 please visit: http://www.hud.gov/news/recoveryactfaq.cfm.
