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 Tax credit offers incentive to new home buyers.
The Housing and Economic Recovery Act of 2008 implemented a tax credit for first time home buyers. The credit can reach up to 10% of a home's value; and in the robust Austin market, that can translate to a good chunk of change. Of course, with all the closing, escrow, and inspection concerns, it's hard to keep everything straight. So here's a straight-up look at who qualifies for the credit, and what exactly it translates to.
How much is the credit? Up to 10% of the cost of the home Maximum amount is $7,500 Interest-free loan repayable over 15 years Who is eligible? Basic requirements: - Purchaser(s) must not have owned a home within the last three years
- Must purchase from unrelated party
Income limits: - Those making no more than $75,000 (individual return) or $150,000 (joint return) may receive the full amount
- If more than $95,000 (individual) or $170,000 (joint), buyers are ineligible
- Those between these two points can receive a partial payment.
What type of property can be purchased? - Any single family residence
- Must be used as a principal residence
- Must close the transaction between April 9, 2008 and July 1, 2009
How is the payment received? - Claimed as a part of the buyer’s 2008 or 2009 tax return
- Refundable:
- Not a reduction of your taxable income Reduces your tax liability
What are the repayment terms? Repayment Amounts: - Pay back 1/15 (6.67%) every year
- For $7,500, about $502.50/year (no interest)
Repayment starts 2 years after credit is claimed: - 2008 tax returns — 2010; 2009 tax returns — 2011
- If house is sold, repayment comes out of sale proceeds
- Repayment Exceptions:
- Sale results in less gain than amount still owing
- Person who used the tax credit dies
Frequently Asked Questions: 1. Does the credit amount differ if you file jointly or separately? - No. The maximum credit is $7,500 for a qualified home purchase whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.
2. How does a buyer apply for the credit? - There is no authorization or approval required. Eligible purchasers will claim the credit on their IRS tax return or through a special form filed with their tax return. The IRS has not defined the mechanics yet.
3. What is the difference between a tax credit and a tax deduction? - A tax deduction is subtracted from the amount of income that is taxed.
- A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.
4. What does refundable mean? - That means the credit can be claimed even if there is little or no tax liability. Here are some examples of how this would work:
- If you owed $8,000 in taxes, after the $7,500 credit you would owe only $500.
- If you owed $3,000 in taxes, after the $7,500 credit you would receive a refund of $4,500.
- If you showed a refund a $1,000, after the $7,500 credit you would receive a refund of $8,500.
5. If I am planning on making a purchase in early 2009, can I claim the credit on my 2008 tax return? - If you purchase a home before July 1, 2009, you can elect to treat the purchase as if it occurred in 2008 for the purpose of receiving the credit. The purchase must occur before the 2008 taxes are filed. If the purchase does not occur before the tax due date of April 15, 2009, you can file for an extension and claim the credit on the extended tax return.
Submitted by Joe Brown, Certified Mortgage Consultant at Sente Mortgage . For more information, please call Joe at 637-9108. |