$7,500 Tax Credit - First Time Home Buyers

So, there is a new tax credit in town for First Time Home Buyers that is in effect from
April 09, 2008 - June 30, 2009.

At a glance, here is the gist of the program -

1) Available to First Time Home Buyers Only

2) Maximum credit is $7,500

3) Single taxpayers w/ incomes up to $75,000 or married tax payers w/ incomes up to $150,000

4) The tax credit will work like an interest free loan and must be re-paid over a 15 year period.

The catch here is that the tax credit must be re-paid.  According to the federal housing tax credit web-site, home buyers will be required to repay the credit to the government, without interest, over 15 years, or when they sell the house, if there is sufficient capital gain from said sale.  For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year.  The home owner does not have to begin making repayments on the credit until two years after the credit is claimed.  So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is file.  If the homeowner sold the home, then the remaining credit amount would be due from the profit on the home sale.  If there was insufficient profit, then the remaining credit payback would be forgiven.

This is just a general outline of the tax credit.  Even though this tax credit has to be repaid, it does seem like a good deal in the long run.  With any type of offer, though, the potential recipient should weigh all the pro's and con's before pulling the trigger.

Here is another take on the tax credit from Lawrence Yun of NAR (National Association of Realtors) -

"NAR Chief Economist Lawrence Yun, The Housing Stimulus Bill passed in the Senate over the weekend.  President Bush said he will sign it into law.  That means housing recovery is on its way. There are many components in the bill, but the one that is the most exciting is the homebuyer tax credit. Up to $7,500 will be given to first-time home purchasers as they file their income tax returns.  The amount gets phased out above a certain income level and is to be no more than 10 percent of the home purchased price though most people will qualify for the full amount.  This is almost like a "credit", which means that the amount is equivalent to cash on tax returns. Example: you do your normal tax return and find that you owe $1,000 next year.  You then apply the $7,500 credit and the government will send you a tax refund check for $6,500.  This credit has a time window and will not be available from July 9th, 2009 on.

It is not a full credit because you do have to pay back this amount over a 15 year time period from the second year.  The payback provisions also have many conditions, which we are further researching.  But in the worst case, you would need to pay back the $7,500 over a 15 year time span from 2010.  So in your 2010 tax filing, you would need to pay $500.

Even in the worst case scenario of paying back the tax credit fully over a 15 year time span, the tax credit is sitll a huge benefit to homebuyers.  First, money today is worth more than money tomorrow - far more than money 15 years from now.  Money loses value over time due to inflation and from the interest income one would receive on that money before fully paying it back.  A smart consumer could pay off a high-interest credit card debt with the tax credit money and that would be the best winning strategy.

I am excited about the tax credit because it will have the biggest impact in getting the housing market moving again and in lessening the foreclosure pressure.  Homeowners across the country will benefit as home prices strengthen.  The economy will also improve - with higher aggregate income for U.S. workers and a lower unemployment rate."

If you have any questions, feel free to e-mail or call.

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Sean Patrick Reilly

RE/MAX Southeast

303.512.0405

sean@seansellshouses.com
http://www.seansellshouses.com

Double Major - Real Estate & Construction Management - University of Denver '91

Comments

[non]

I don't think it is fare for 2009 year you get $8,000 and don't have to pay it back and for the last year you have to pay back in 15 years WOW does not sound right to me

[homebuyers121]

Now you had first time home buyers and so called real estate investors getting into the mix with all of this cheap money going around because of Alan Greenspan lowering interest rates to historically low numbers. You can get still more information about home buyers which I browsed on internet can fetch you help.