A few days ago I told you why it is a great time for home buyers to purchase a home. In addition, people that are currently renting and have not owned a home in the last 3 years have an added benefit for buying a home now.
In an effort to spur growth in the housing market, the government is offering a $7,500 tax credit for people that have not owned a home in the last 3 years AND purchase a property before July 1, 2009.
Tax Credits 101 – Keeping More Money in Your Bank Account:
If you are eligible for the tax credit, you will still be required to show up on closing day with your down payment and closing costs. However, when you file your income tax return, $7,500 will be subtracted off of the amount that you owe in taxes to the Federal Government. If you owe less than $7,500 in taxes, you’ll get a tax refund.
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Originally owed $10,000 – after tax credit: $2,500 owed
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Originally owed $5,000 – after tax credit: $2,500 refund
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Originally due $1,000 refund – after tax credit – $8,500 refund
Who is Eligible for the $7,500 Tax Credit?
In order to be eligible for the tax credit, you must meet the following guidelines:
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Purchase a primary residence between April 9, 2008 and July 1, 2009 (properties can be detached single family homes, attached homes such as condos and villas, mobile homes and houseboats)
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Only first-time home buyers are eligible (including people that have previously owned a home but have not owned a primary residence in the last 3 years)
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Single taxpayers with an income up to $75,000 and married couples with an income up to $150,000 qualify for the full tax credit
Important Details that You Need to Know:
As in all government benefits, there are some fine print details that you need to understand before moving forward.
The credit is actually a loan that must be paid back:
The credit will be repaid over 15 years. The National Association of Home Builders information site did a great job of explaining the payback provisions:
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For 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, a $500 payment is not due until the 2010 tax return is filed. If the home owner 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.
Partial tax credits are available to taxpayers with incomes above the limits:
If your adjusted gross income is above $75,000 but below $95,000 ($150,000/$170,000 for married couples), then you may qualify for a partial credit. For more information on how to determine your adjusted gross income and the amount of the partial credit, you should consult a tax professional.
Homes purchased for less than $75,000 will result in a reduced tax credit:
The tax credit is equal to 10% of the home purchase price, but no more than $7,500.
If you think you may qualify for the tax credit, make sure to read all the fine print requirements for the tax credit and contact a tax professional about how to obtain your benefits.
The Time to Act is NOW:
If you or someone you know is eligible for the $7,500 tax credit, it’s hard to imagine a better time to buy a home than in the in the next few months.
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Interest rates are historically low…and it’s just a matter of time before they return to higher rates
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Fees on loans for many borrowers with less than 720 credit scores and 40% down are going up beginning November 1, 2008
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Current market conditions with buyers outnumbering sellers allows buyers to negotiate excellent sale price and terms
If a buyer is eligible for the $7,500 credit, it could allow them to reimburse their savings account for their closing costs so that the home purchase doesn’t deplete their savings. Another option would be for a buyer to ask the seller to cover their closing costs at the time of the purchase, and the $7,500 credit that comes at the end of the year could be used to cover some needed repairs or upgrades to the house. Or, the money simply could provide the buyer a good safety net for future needs.
Since the money does not have to be repaid if the future sale proceeds don’t cover the balance due, buyers are even protected from market declines in the future.
If you are renting, have a stable income and ready for the responsibilities of home ownership, I don’t see any reason to wait another year or two. The tax credit will be long gone and there is a good chance the interest rates will be higher along with a more balanced market (meaning less great deals for buyers).
It might even be worth helping your solidly employed recent college graduate start building equity in their very own condo.
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PDF Possibly Related Posts:
- Who is Eligible for the New Housing Tax Credit?
- Housing Tax Credit for 1st Time Buyers & Current Homeowners
- 1st Time Buyers – Buy Now for Once in a Lifetime Opportunity
- Missouri Residents can use the First Time Buyer Tax Credit at Closing to Cover Costs
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