First time buyers making home purchases after April 8, 2008 and before July 1, 2009 may be eligible for a $7,500 tax credit under the recently enacted Housing and Economic Recovery Act of 2008. So, if you recently bought your first home or are thinking about doing so in the next 10 months, you will want to read on.
The credit reduces the taxpayer's federal tax liability or increases his or her refund, dollar for dollar, even if the taxpayer owes no tax or the credit is more than the tax they owe. It is retroactive to the start date for buyers who meet eligibility requirements.
As with most great deals, it is important for buyers to realize that there is a catch. The so-called "credit" operates somewhat like an interest-free loan because it must be repaid over a 15-year period. So, an eligible taxpayer who buys a home today and claims the $7,500 credit on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount ($500) as an additional tax on his or her 2010 return.
Any citizen who has not owned a home in the three years prior to the purchase who wishes to purchase a main residential home (the credit excludes vacation homes and rental properties) is eligible.
Married couples making $150,000 to $170,000 a year are eligible for a reduced credit and those making over $170,000 are ineligible. For single filers, the eligibility range is $75,000 to $95,000. Higher income taxpayers are ineligible for any such breaks.
While $7,500 is not a lot to offset astronomical home prices, it could be the difference that makes up a significant down payment and puts responsible homeowners in houses they can afford. The fact that it is not a handout but rather a hand-up in the form of an interest-free loan, similar to one a parent might give a young adult child to help them get on their feet financially, also makes it appealing. But the offer expires next July, so prospective buyers need to act soon!
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