The $7500 tax credit for 1st time homebuyers>

Understanding the 2008 Housing & Recovery Act a.k.a. $7500 tax credit

1.  The time is right to finally experience the American dream of home ownership. On July 30, 2008, President Bush signed a major housing bill (H.R. 3221) into law. As part of the housing bill, Congress has created a new, temporary tax credit to provide an incentive for first-time homebuyers. The temporary tax credit, combined with low interest rates, a large inventory of homes to choose from and home prices at or close to rock bottom prices, makes this an opportunity of a lifetime for first-time homebuyers.

But like so many of the good things in life, time is of the essence for buyers who want to take advantage of this outstanding opportunity. Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible.

2.  How does the tax credit work?
•Tax credits are special provisions that reduce income tax liability on a dollar for dollar basis. Credits are claimed on an individual's income tax return. In this case, Congress has created a tax credit for first-time homebuyers. The maximum credit amount is $7,500. Thus, if after figuring out all the income items and exemptions and making all the required additions, subtractions, deductions and other items on a tax return, a person had a total tax liability of $8,000, a $7,500 credit would wipe out all but $500 of the tax due.

3.  So in the case of this new homebuyer tax credit, what happens if the purchaser is eligible for a $7,500 credit but their entire income tax liability for the year is less than $7,500?

This new tax credit is a so-called "refundable" credit. Thus, if the actual tax liability was $6,000, the purchaser would receive a tax credit refund of $1,500. The refundable amount is the difference between the $7,500 credit amount and the amount of tax liability. (The term "tax liability" refers to the actual amount of tax computed on the tax return once all the computations are complete. The individual may already have "paid" their tax liability through withholding, by means of estimated tax payments or simply by a check that makes up the difference when there is a shortfall of withholdings or estimated tax payments. Most taxpayers determine their tax liability by referring to tables that the IRS prepares each year.)

See the updated plans for your money in my other blog entries:  http://activerain.com/blogsview/931245/More-money-for-the-Tax-Credit-for-homebuyers-8000-NOW

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