Up to $7,500 Refundable Tax Credit for First-time Homebuyers!

If you’ve been thinking about owning a home, there is no better time than right now. Not only is the foreclosure inventory at its highest in decades, which is driving home prices down even further, but also the federal government recently passed legislation that is simply too good to pass up.

On July 30 of this year, President Bush signed the “Housing and Economic Recovery Act of 2008,” which provides for a special tax credit for first-time homebuyers. (By the way, you’re considered a first-time homebuyer if you didn’t own a home in the past 3 years – so you could be eligible for this tax credit even if you are really a “second-time” homebuyer!) You need to act now, though, because you must purchase a home before July 1, 2009 in order to qualify for the tax credit.

Here’s how it works:

• Under the legislation, a first-time homebuyer (again, this includes anyone who hasn’t owned a home in the past 3 years) is eligible to receive a tax credit of 10% of the home price, up to $7,500, for homes purchased on or after April 9, 2008 and before July 1, 2009. Keep in mind that there is a phase-out of the credit based on modified adjusted gross income (“MAGI”). The tax credit may be reduced if your MAGI is over $75,000 ($150,000 if a joint return).
• The housing tax credit is delivered through your federal income tax return that you file. The best news is that it’s a “refundable” credit, meaning you will receive a tax refund check if you have no tax liability (as opposed to the tax credit being disallowed and carried over to the future years if you have no tax liability to offset).
• The housing tax credit is also a “repayable” credit. This means that you are required to repay 1/15^th of the tax credit amount ($500 per year if your tax credit was the maximum $7,500) over the next 15 years. In this way it works much like an interest-free loan. It should also be noted that the repayment amount is limited to the gain (if any) if you sell the house. For example, if there is no gain when you sell the house, you don’t have to repay the balance of tax credit you received. If you really want to know, you also don’t have to repay the balance if you die.

To find out more about these programs, ask your real estate agent or tax advisor for details.

This has been Real Estate Rob putting you on the Inside Track to home ownership.