PARAMOUNT MORTGAGE - LENDER'S BLOG

First-Time Home Buyer's $7,500 Tax Credit

A new provision in the U.S. Housing and Economic Recovery Act of 2008 has generated lots of interest – the first-time home buyer’s $7,500 tax credit.

Realtors and their clients should take note of this valuable inducement, but it lasts for only a limited time. The tax credit ends June 30, 2009.

Here’s an at-a-glance synopsis of the important points:

• Qualifications: A home buyer may not have owned a home in the previous three (3) years to qualify.
• Income Restrictions: The maximum income for individuals filing as “Single” or “Head of Household” is $95,000; individuals filing a joint return may have income of no more than $170,000.
• Determining the Credit: The credit is determined by taking 10% of the sales price of the home up to the credit limit of $7,500. A buyer purchasing a home for $75,000 or more earns the maximum credit of $7,500. A home purchase under $75,000 would earn a credit equal to 10% of the home price. For example, a buyer who pays $50,000 for a home would earn a $5,000 credit (10% of $50,000).
• Claiming Your Credit: You must file your federal income tax return to receive the first-time home buyer’s credit. No applications are required, but consult with your tax advisior when filing your return.
• Payback: The year after you take the credit off your payable federal income tax, you will add back in 1/15 of the credit to your tax due. For the maximum credit of $7,500, this would be $500 each year for 15 years ($7,500 ÷ 15 years = $500). For a credit of $5,000 this would be $333.33 each year for 15 years ($5,000 ÷ 15 years = $333.33). Buyers end up with a no-interest loan.
• Selling Your Home: If you sell your home before the complete payback, the entire remainder of your unpaid tax credit is due in the tax-filing year your home was sold.
• Refundable: Households with incomes too low to owe income tax would receive a refund check from the IRS for the credit amount.
• Effective Dates: The credit applies to any home purchased after April 8, 2008 and before July 1, 2009.