The single largest provision in the 15.1 billion package of housing tax incentives in the recently enacted Housing Act 2008 is a measure allowing individuals buying their first home to take a tax credit of up to $7,500 of the purchase price. Qualified homebuyers can subtract the credit amount from their federal income tax when they buy a home and even get a refund the credit exceeds the tax. However, they are then required pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details of the new credit.
- The home must be in the U.S. and the taxpayer’s principle residence. Taxpayer and spouse, if married, must not have owned another principle residence within the previous 3-year period.
- The home must have been purchased from April 9, 2008 through June 30, 2009. Purchase from related persons, acquisition by gift or inheritance do not qualify, nor do houses constructed by taxpayers.
- The credit is equal to 10% of the price for the home, to a maximum of $7,500. The maximum credit applies to both individuals and married couples filing a joint return. A married individual filing a separately can claim a maximum credit of $3,750.
- The credit is phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) the year of purchase. Taxpayers with modified AGI over $95,000 ($170,000 joint) cannot claim the credit.
- The credit is refundablel that is. household with income too low to owe income tax can benefit from it.
- In the second year after purchase, taxpayers who took the credit must start paying it back in equal installments over 15 years, at no interest. ( For example, a first-time homebuyer purchase a home for $100,000 this coming December and claims $7,500 credit on his 2008 tax return. He would be required to pay back $500 [1/15 of the credit] on his 2010 tax return and for the subsequent 14 years, through 2024.)
- If the taxpayer sells the house or the homes ceases to be the primary residence, before total repayment of the credit, any remaining credit is due on the tax return for the year in which the home is sold or ceases to be primary residence. But, if the home is sold at a loss to an unrelated person the remaining credit is to the extent of the loss.
- No credit is allowed if the taxpayer was ever entitled to a D.C. homebuyer creditl the home purchase was finance through tax-exempt mortgage revenue bonds; the taxpayer is a non resident alien; or the taxpayer disposes of the residence (or it ceases to be the principle residence) in the year of purchase.
Sources: Referral Realty
If you think you qualified, please contact your CPA regarding tax saving on this new law.
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