Even when it’s not tax season it’s always great to buy a home. There now an incentive for first time home buyers to go with the purchase of their new home. A first time home buyer is an individual that has not owned a home within the past three years from the date of purchase. President Bush signed a new housing bill (H.R. 3221) into law on July 30, 2008. A part of this bill includes sentences that provide a temporary tax credit for home purchases made between April 9, 2008 thru July 1, 2009. The tax credit is refundable; it’s received only after you have filed your taxes.
There are several expectations that Congress is expecting from this new bill. With that said, the qualifications for the new plan are:
Single Filers
1. The home purchase must be in the US
2. Maximum refund amount of $3,750.
3. The tax credit will be 10% of the purchase price or $3,750; whichever is less
4. Income Limitations: The Adjusted Gross Income (AGI) must be below $75,000 to qualify for the full refund.
5. Income Limitations: As income increases the credit begins to phase out. At $95,000 you no longer qualify for the credit.
Joint Filers
1. The home purchase must be in the US
2. Maximum refund amount of $7,500.
3. The tax credit will be 10% of the purchase price or $7,500; whichever is less
4. Income Limitations: The Adjusted Gross Income (AGI) must be below $150,000 to qualify for the full refund.
5. Income Limitations: As income increases the credit begins to phase out. At $170,000 you no longer qualify for the credit.
If you owe taxes you will owe taxes then the amount owed will be deducted from the amount of the credit. An example would be someone that’s going to receive a credit of $5,000 but owes $1,000 on their tax bill, they would receive a refund of $4,000 once processed.
There are a few things to keep in mind while considering this tax credit. Yes, you do receive a credit for the new home purchase, but you must pay back all or a portion of the amount received. The repayments begin the second year after the home is purchased.
Examples:
1. Someone purchasing a home in November 2008 the repayment will start with in 2010 tax year.
2. If they purchase the home in March 2009 the repayments will start in the 2011 tax year.
The benefit of the credit is that it can similar to receiving an interest free loan because there is no interest paid on the tax credit received. You do have the option to spread out the payments over 15 years. If during the 15 year repayment period the home is sold for a profit then the balance due must be paid in full when the sale occurs. However, if during the 15 year repayment period the home is sold at a loss then the balance due will be $0. There will be no repayment required.
There are restrictions! If the home is purchased through mortgage revenue bonds, i.e. tax-exempt bonds, then the purchaser is not eligible for the tax credit.