I have recently started to receive questions in regards to the $7,500 Tax Credit for first time buyers. This will not apply to all new homeowners but I thought I would share, just in case it helps you, your past clients or someone you are working with now.
While I am not an expert in regards to this law I have done some research and have come up with the following information you may find helpful. I hope you find this information helpful and please do not hesitate to contact me if you have any other mortgage related questions or needs.
While it is being called a tax credit, it is actually an interest free loan.
Who is eligible? – First Time home buyers buying a primary residence who have a Adjusted Gross Income (actually a modified AGI) of less than $75,000 for single tax payers or $150,000 for those married taxpayers filing joint returns are eligible for the full “credit”. If your MAGI exceeds $75,000 for single tax payers or $150,000 for married taxpayers filing joint returns you may still be eligible for a partial credit. There is a phase-out and if your MAGI exceeds $95,000 for single taxpayers or $170,000 for married taxpayers filing joint returns you will not be eligible for a credit.
The tax “credit” can be taken in the year you purchase the house, but qualified home purchasers in 2009 may elect to take the tax credit in 2008
Home purchase must occur on or after April 9, 2008 and before July 1, 2009
“Credit” is 10% of home purchase price, but is capped at $7,500 meaning most first time buyers will get the $7,500 but if they purchase a house for less than $75,000 they will only receive 10% of the purchase price (i.e. a purchase price of $50,000 will only result in a credit of $5,000).
Tax credit will be paid back in equal payments over a 15 year period or in equal payments until the house sells and then remaining amount due will be paid in that tax year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. For example if they took a $7,500 credit on 2008 tax returns they would make their first $500 payment in 2010. You will then pay an additional $500 in taxes each and every year until you paid back the full $7,500 or until the year your house is sold in which case the remaining amount due would be paid that year.
There are many resources you can find online but here is a good website if you would like more information – http://www.federalhousingtaxcredit.com/faq.php. This website was used to gather most of the information above.
The above information is meant to provide you with some key points to the tax credit, but is not intended to be an expert opinion of how it might apply to a specific taxpayer. I am not a CPA and in no way am trying to provide anyone with any tax advice. Please consult a tax professional to determine how this law may apply to you.
Rob Sadoff, Omni Mortgage
Tags: Buyer Tax Credits