First Time Homebuyer Credit
We understand there are many questions about this new refundable tax credit.
How Much is the Credit?
AS CURRENTLY WRITTEN (this is the tax law today.. at least it was this morning 02.16.09!) the credit amount is the lesser of $7,500 or 10% of the purchase price of a principal residence ($3,750 if Married, Filing Separate).
The closing date for the new home must be between April 9, 2008 and June 30, 2009. If the home is purchased in 2009 the taxpayer may elect to claim the credit on their 2008 tax return (original or amended).
The credit only applies to taxpayers who have not had any ownership interest in a principal residence during the three year period prior to the purchase of the home. The three year period applies only to a principal residence. This means that a renter who owns a vacation home may qualify for the first time homebuyer credit if they meet the other criteria.
There is no requirement that a taxpayer have any income to get this fully refundable credit. This means that taxpayers with only Social Security or Disability income may purchase a home and get this credit. The credit phases out for single taxpayers with income between $75,000 and $95,000. The phase out range for married taxpayers is $150,000 to $170,000.
Property acquired from a related person does not qualify for the credit! Property acquired through gift or inheritance is not purchased and therefore does not qualify for the credit.
Do I Have to Pay it Back?
AS CURRENTLY WRITTEN, the tax law requires the credit to be recaptured (repaid on the tax return), interest free, over 15 years beginning the second year after the credit is claimed . The payback is $500 per year; which actually makes it an interest free loan.
There is a possibility the law may change and no repayment be required and that the amount of the credit may increase.
If the house is sold or no longer the principal residence prior to this period, the remaining credit is recaptured (paid back to IRS) that year. There are some exceptions to the payback requirement (death of homeowner, divorce and involuntary conversion of the home).
Overall, this First Time Homebuyer Credit appears to be a good incentive to help qualified taxpayers buy a principal residence.