The First Time Homebuyer Tax Credit
The Housing and Economic Recovery Act of 2008 was signed by the President on July 30, 2008. One of the provisions, the Homebuyer Tax Credit, gives a first time buyers up to $7,500 tax credit if they purchase before July 1, 2009. First time homebuyer is defined as, “a buyer who has not owned a principal residence during the three-year period prior to the purchase”. When you consider the recent reports from NAR stating that home sales are on the rise, this would be the best time for first time homebuyers to buy.
Here are some features of this incentive:
In order to receive the tax credit you must have purchased your home between April 9.2008 and July 1, 2009. Purchase being the closing date. The home may be a single family, townhome, condominium, manufactured home or a co-op.
You must also meet income requirements. The full amount of credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 for married).
The tax credit is ten (10) percent of the cost of the home up to $7,500. The tax credit is claimed on the federal income tax return. Homebuyers who believe they qualify for the tax credit are permitted to reduce their tax withholding according to the National Association of Home Builders (NAHB). Buyers can adjust their withholding amount on their W-2 via their employer or through their quarterly estimated tax payment. IRS publication contains rules and guidelines for income tax withholding.
This is a tax credit, therefore it must be repaid. The repayment period is 15 years without interest or when the home is sold if there are sufficient capital gains from the sale.
The NAHB gives this example, “A home buyer claiming a $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 return, $500 payment is not due until the 2010 tax return is files. 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.”
