Last week, the President signed historic legislation to spur growth in the housing sector. An important part of legislation is a tax credit for first time home buyers. Under the new law, beginning April 9, 2008 (yes this is retroactive!), first time home buyers to get up to a $7,500 tax credit from the purchase of a single family home, townhome, or condo.
A first time home buyer is anyone who has not owned a home during the past three years and is a U.S. citizen who files taxes. (Some homeowners that do not file taxes may qualify. You can find answers to questions like this and many others at www.federalhousingtaxcredit.com and www.nahb.org/mythbuster.)
To qualify for the tax credit, buyers must close on their home purchase between April 8, 2008 and prior to July 1, 2009. You can claim the entire tax credit if single or head-of-household tax filers have an adjusted gross income that is less than $75,000. If you are married, this number jumps to $150,000. Single or head-of-household tax filers who earn between $75,000 to $95,000 (or married filers earning between $150,000 to $170,000) are eligible to receive a partial first-time home tax credit.
The tax credit can be taken in 2008 or 2009. It works as follows. If a taxpayer pays less than $7500 in federal income tax, the government will write them a check for the difference. Those who pay more than $7500 in federal taxes, would reduce their tax bill by the amount of the credit allowed.
There is a catch -- would'nt you know it! The catch is that there is a payback provision. Essentially, the credit is like an interest-free loan that must be paid back over 15 years. If you claim the $7500 credit, you would have to repay the credit at $500 per year. If you sell your home, then the remaining credit would be due from the proceeds of the home sale. If there is no profit, however, the remaining credit payback would be forgiven.
This is a great option for first time home buyers to consider when thinking about moving forward on the purchase of a home. If you have any questions about this, don't hesitate to contact Team Jodi. We would be happy to answer any and all questions about this new legislation.
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