First Time home Buyers Federal Tax Credit (HR 3221)
Amount of Credit: 10% of home cost, not to exceed $7500.
Eligible Property: Any single-family residence (including condos, co-ops, houseboats) that will be used as a principal residence.
Income Limits: Single $75,000; married $150,000, based on adjusted gross income, phases out for higher income levels ($95,000 and $170,000, respectively).
First-Time Home Buyer: Purchaser may not have owned a principal residence in the prior 3 years.
Purchase Dates: On or after April 9, 2008 and before July 1, 2009
How: Claim the credit on your federal income tax return, no other forms required.
Repayment Date: Payment begins two years after the credit is taken on your taxes for the next 15 years.
Example: if a credit is taken on your 2008 tax return, repayment is not required till 2010 tax return is filed
Repayment amount: Beginning after the second year after taking the credit a $500 per year repayment for the next fifteen year.
Sell or stop using it as your principal residence: If you sell it, rent it out, make it a second residence or investment property, before the last year of this repayment, you are required to repay the entire remaining amount with your tax return for that year, subject to certain special provisions.
Comment
. The credit does not have to be repaid if the taxpayer dies. Special rules also exist for an involuntary conversion and for a residence transferred in a divorce.
Because the money must be repaid, isn't the first-time home buyer program really a zero-interest loanrather than a traditional tax credit?
Yes. Because the tax credit must be repaid, it operates like a zero-interest loan. Assuming an interest rate of 7%,that means the home owner saves up to $4,200 in interest payments over the 15-year repayment period.Compared to $7,500 financed through a 30-year mortgage with a 7% interest rate, the home buyer tax creditsaves home buyers over $8,100 in interest payments. The program is called a tax credit because it operates through the tax code and is administered by the IRS. Also like a tax credit, it provides a reduction in tax liability inthe year it is claimed.
Instead of buying a new home from a home builder, I have hired a contractor to construct a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a
principal residence that is constructed Federal Housing Tax Credit for First-Time Home Buyers by the home owner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after April 9, 2008 and before July 1, 2009.
In contrast, for newly-constructed homes bought from a home builder, eligibility for the tax credit is determined by the settlement date.Yes. If the applicable income phaseout would reduce your home buyer tax credit amount in 2009 and a larger credit would be available using the 2008 MAGI amounts, then you can choose the year that yields the largest credit amount.
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There is current talk/rumour of a similar program being introduced in the Canadian marketplace. It would be nice to see something like that here.