resource center

Library

First-Time Homebuyer Tax Credit

On July 30, 2008, President Bush signed a major housing bill (H.R. 3221) into law. As part of the housing bill, Congress has created a new, temporary tax credit to provide an incentive for first-time homebuyers. The $7500 credit will be available for the purchase of a principal residence on or after April 9, 2008 and before July 1, 2009.

FREQUENTLY ASKED QUESTIONS

So in the case of this new homebuyer tax credit, what happens if the purchaser is eligible for a $7500 credit but their entire income tax liability for the year is less than $7500?

This new tax credit is a so-called “refundable” credit. Thus, if the actual tax liability was $6000, the purchaser would receive a tax credit refund of $1500. The refundable amount is the difference between $7500 credit amount and the amount of tax liability.

Who can use the new tax credit?

Only first-time homebuyers are eligible to use the credit. A first-time homebuyer is defined as an individual who has not had an ownership interested in a principal residence in the previous three years. The 3-year period is measured as of the date of the purchase of the eligible principal residence.

Is there an income restriction?

Yes. The income restriction is based on the tax filing status the purchaser claims when filing his/her income tax return. Individuals who Form 1040 filing status is Single (or Head of Household) are eligible for the credit if their income is no more than $75,000. Individuals who file a Joint return may have income of no more than $150,000.

Why do some news reports call the credit an interest-free loan?

Unlike most other tax credits, this tax incentive must be paid back. All eligible purchasers who claim the credit will be required to repay it over 15 years. The statute specifies that the repayment amount will be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7500 credit will repay $502.50 each year. There will be no interest charge on outstanding balances.

For additional information regarding the First-Time Homebuyer Tax Credit, please CLICK HERE to find the answers to the following questions:

· How does a tax credit work?

· Is the amount of the credit tied to the price of the home?

· What’s the definition of “principal residence?”

· Are there restrictions on the location of the property?

· Are there restrictions related to the financing for the mortgage on the property?

· How do I apply for the credit?

· What is the repayment feature of the credit?

· What are the terms for repayment?

· When do I make the payment?

· What If I sell my house before the 15-year repayment period is complete?

· And more.

CAVEAT: THIS INFORMATION IS ACCURATE BASED ON INFORMATION AVAILABLE AS OF JULY 30, 2008. AS WITH ANY TAX LAW CHANGE, CHECK WITH A TAX ADVISOR IF THERE ARE QUESTIONS ABOUT USING THIS PROVISION.