(Originally posted 8/6/08 at donedam.com)
In this second post of our H.R. 3221, the "Housing and Economic Recovery Act of 2008" Series, we talk about a provision included that allows most first time home-buyers to receive at $7500.00 tax rebate. Make sure you read all the way through as there are some caveats and a TWIST. Here are the details you need to know:
- The $7500 Tax Credit is available to firs-time home buyers that purchase a principal residence sometime after April 9th of 2008 and sometime before July 1st of 2009.
- The Credit is a "refundable" credit. So, if you have a tax liability of $2000 next
year and qualify for the full $7500 credit, you would be hypothetically entitled to a $5500 refund! - A first-time home buyer is classified as someone who has not had an ownership interest in a property within the past 3 years.
- There are income restrictions on the tax credit, so if you make more than $75,000 filing single or
$150,000 filing jointly, you may not be eligable for the tax credit (I haven't found a good description of the calculations used to phase-out the credit...let me know if anyone knows them and I'll post it here).
- The tax credit is tied to the price of the home you purchase. It will be 10% of the purchase price of the home with a maximum of $7500. For example, if you purchase a home for only $50,000,then the credit you could receive would be $5000...but a purchase price of $160,000 would max out at $7500.
BUT WAIT....THERE'S A CATCH!
Unlike most other tax credits, this tax incentive must be paid back. All eligible purchasers who claim the
credit will be required to repay it over 15 years. The statute specifies that the repayment amount will
be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7500 credit will repay
$502.50 each year. There will be no interest charge on outstanding balances.
When the person who used the credit sells the home, any amount of tax credit that has not been repaid
will be due in the year of sale. For example, if an individual still "owed" $4000 in repayments and
realized $25,000 of proceeds from the sale, the $25,000 of seller proceeds would be reduced to $21,000
and $4000 will be remitted to the IRS.
If the gain on the sale is less than the amount that must be repaid, part of the liability is forgiven. For
example, if the individual still "owed" $4000 but the gain on the sale was only $3500, then the seller
would not be required to repay the IRS the $500 shortfall. If there was no gain or even a loss, then the
remaining $4000 would not be repaid.
All in all, I'm in favor of this provision in the bill. It gives first-time home buyers a great incentive to purchase a home over the next year, and allows them to basically "borrow" up to $7500 from the government and pay it back with the equity they gain in their home...with no repercussions if they gain no equity by the time they sell. I'm sure there are a bunch of questions, so feel free to fill up the comments section or shoot us over an email.
Tomorrow we'll be talking about some of the changes to the FHA program the bill brought about.
H.R. 3221, the "Housing and Economic Recovery Act of 2008" Why You Should Care Series - Post 1
First-Time Home Buying in 2008: 5 Reasons Why Now is a Good Time To Buy
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