As part of its major housing legislation this past summer, Congress created a tax credit to provide an incentive to first-time home buyers. I believe this legislation is a positive step to help stabilize the current housing market and make the dream of homeownership more attainable for many Americans.
The tax credit of $7500.00 will be available for the purchase of a principal residence on or after April 9, 2008 and before July 1, 2009.
Who qualifies?
Only first time home buyers or someone who hasn't had ownership interest in a principal residence in the past three years.
Is there an income restriction?
Yes. Basically if you are single and you earn less than $75,000 or married and filing joint return with less than $150,000 per year in income, you are eligible for the tax credit. If you make more than this, you may still be eligible but for less.
What is a tax credit?
Essentially, the tax credit is a so-called "refundable" credit. Thus in an example where ones tax liability is $6000.00 for the tax year, the purchaser would receive an income tax refund of $1,500.00. The refundable amount is the difference between $7500.00 and the amount of the tax owed.
Why is the credit sometimes referred to as an "interest free" loan?
Unlike most other tax credits, this tax incentive must be paid back. Elligible purchasers will be required to repay the tax credit over 15 years. The statute specifies that the repayment amount will be 6.67 percent of the credit amount each year. Therefore, a buyer who qualifies for the full $7500 credit will repay $502.50 each year. There will be no interest charge on the outstanding balances.
This is just a little about the program. It is a great opportunity for first-time buyers get needed cash during the first year of ownership. And the great thing about the program is that you can purchase a home in 2009 and retroactively take the credit on your 2008 tax return.