To jump start the housing market, Government is offering a tax credit up to $7,500 to first-time home buyers.While everyone is not eligible but if you do qualify it is an opprtunity for you to take advantage of the new credit.
Eligibility Rules:
- The tax credit is available for first-time home buyers only.
- The maximum credit amount is $7,500 or 10% of the purchase price.
- The credit is available for homes purchased on or after April 9, 2008 and before July 1,2009.
- If you own a home now you are not eligible. If you sold your home more than 3 years ago and rent now you are eligible.
- Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
Example 1:Assume that a married couple has a modified adjusted gross income of $160,00. The applicable phase out to qualify for the tax credit is $150,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0 the result is 0.5. To determine the amount of the partial first-time home buyer tax credit that is available to this couple, multiply $7,500 by 0.5. The result is $3,750.
Example 2:Assume that an individual home buyer has a modified adjusted gross income of $88,000. The buyer's income exceeds $75,000 by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35. Multiplying $7,500 by 0.35 shows that the buyer is eligible for a partial tax credit of $2,625.
Payback:Unlike other credits this must be paid back over period of 15 years. Starting from second tax year after the purchase and continuing upto 15 years, taxpayers are expected to pay back. Assuming you have taken full $7,500 tax credit over 15 years payback the cost will be $500 a year. In a way it is an interest free loan.
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