Tax Credit for First Time Homeowners

The Housing and Economic Recovery Act: Tax Credit The tax credit is for First Time Homebuyers (not owned a primary residence for the past three years) whose loan closed between April 9, 2008 and June 30, 2009. The highest amount of the tax credit will be $7,500 for individuals earning up to $75,000 and couples earning no more than $150,000. The amount of the tax credit declines when the income rises and phases out completely when the single tax payer earns $95,000 and a couple earns $170,000. A tax credit is much better than a tax deduction. A tax deduction is added to all of the other deductible items on Schedule A (medical expenses, charitable contributions, home interest, property taxes, unreimbursed employee expenses, etc.) and then that amount is deducted from the adjusted gross income, giving you the bottom line income from which the income tax is calculated. A tax credit is taken after all of the deductions are calculated, the adjusted gross income is calculated, and the income tax is decided - then the $7,500 comes off of that amount! If the taxpayers owe less than $7500 in taxes, the difference between what they owe and the $7500 is given to them as a tax refund. However, this tax credit is not necessarily a gift...This $7,500 is an interest-free, 15-year loan. Every year for the next 15 years, the taxpayers must increase the amount of taxes they pay by $500 until the loan is paid in full. If the homebuyers sell their home within 15 years, and the gain on the home is less than the amount of the credit, then the remaining portion of the tax credit is forgiven. If the gain is greater than the remaining portion of the tax credit, then the balance will be due for that year's income taxes.