The $7,500 tax credit was passed and signed into law in July as part of the Housing and Economic Recovery Act of 2008. This is for first-time home buyers.
The real estate industry has had success with tax credits in the past. In 1975, Congress passed a $2,000 credit for home buyers (about $8,200 in today's dollars). The difference was buyers did not have to repay for the loan.
The Senate Finance Committee estimates that about 1.6 million people will use the credit. This tax credit it’s not going to provide first-time home buyers with cash up front, buyers have to apply to get the credit after the fact. Additionally, buyers must begin paying back the loan within two years, at a rate of no more than $500 a year for 15 years.
HOW IT WORKS
To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit. Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
HOW IT WORKS
To qualify for the full $7,500, individuals must earn less than $75,000 annually, while couples may earn up to $150,000. Individual buyers with income of up to $95,000 and couples with income up to $170,000 are eligible for a partial credit. Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home's sale price, up to $7,500, whichever is smaller.
The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers, who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a dollar-for-dollar deduction of your tax bill. So a buyer who would normally pay $8,000 in taxes would pay just $500.
It's also "refundable," which means if a buyer's taxes are less than $7,500, the government will send them a check for the difference. For example, if a couple's income generates a tax bill of $5,000, the government will refund all of that plus $2,500.
DO BUYERS HAVE TO REPAY?
Yes, buyers must begin paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the home is sold, any outstanding balance will be repaid from the profit; if it's sold at a loss and the difference will be forgiven.
Disclaimer:
No Hard Sale Realty, LLC is a licensed real estate brokerage in the state of Arizona. We are not financial advisor, tax account, or real estate attorney. Thus, the information provided herein is general knowledge in nature and it is not intended as a legal, financial, or tax advice. Should you have additional questions after reading this blog, please consult with your accountant, financial advisor, or legal counsel.
