$7500 Tax Credit - What the First Time Buyer Tax Credit Means in Billings Montana
$7500 Tax Credit?
Congress recently passed (and the president signed into law) a housing stimulus package that has been billed as the $7500 Tax Credit for first time buyers. What does this mean to first time home buyers? The correct answer is--it depends.
First off, we know that people are inquisitive about the tax credit and we are getting more than a few questions here at Howard Sumner Real Estate about it. We have put together an information pack about the details of the new law...as always, we recommend that you visit with a competent financial professional before doing anything. That is always good advice!
Secondly, it is not, by precise terms, a tax "credit". It is actually a no interest loan over 15 years. You GET the tax "credit" for being a first time homebuyer, but that is only if the price of the house is over $75,000. Below that, it is 10% of the value of the home. You get it back on your taxes, regardless of whether you make enough to owe takes or not. It is refundable to you at that point.
Also, since it has to be paid back, it you sell your home, it is subject to a "recapture" in that year. (Means that you owe the money. Confusing, yes....it is to a degree.
All that having been said, some first time home buyers may well benefit greatly from this program and it is definitely worth looking into .if you'd like some help making sense of it all, give us a call, we will be happy to help.
Here is some more detailed information
First-Time Homebuyer Tax Credit
- Up to $7,500 federal tax credit for first-time home buyers
There's a new, refundable tax credit of up to $7,500 for the purchase of a primary residence. The credit is available to first-time homebuyers. This tax credit has some novel features, so here are the details.
Amount of the Homebuyer Tax Credit
The tax credit is worth 10% of the purchase price of the home, with a maximum credit of $7,500. The credit is limited to $3,750 for married couples filing separate returns. The credit is also limited to the same $7,500 maximum for unmarried persons who purchase a residence together.
Qualifying as a First-Time Homebuyer
For the purpose of this tax credit, a first-time homebuyer is defined as someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home.
Limited Time Period for Purchasing a Residence
The credit has a very limited life-span. Individuals will need to purchase a residence after April 9, 2008, and before July 1, 2009.
What's a Primary Residence?
A primary residence is a residence in which an individual lives most of the time. A primary residence can be a house, condominium, co-operative apartment, houseboat, or mobile home.
Because the tax credit is for people who purchase their primary residence, individuals may qualify for the tax credit even if they own a vacation home or rental property as long as those properties were not their primary residence for at least three years preceding the purchase of their new home.
Income Phase-out Range
The credit is phased out for individuals with modified adjusted gross income between $75,000 and $95,000. For married couples filing a joint return, the phase out range is $150,000 to $170,000.
Modified AGI for the First-Time Homebuyer Credit
To determine if the tax credit is reduced or eliminated by the income phase-out range, individuals will need to determine their modified adjusted gross income.
For the purposes of determining income eligibility for this credit, adjusted gross income is modified by adding back the following excluded income:
· foreign earned income;
· income from Guam, American Samoa, or the Northern Mariana Islands;
· Income from Puerto Rico.
When to Claim the Credit
The credit is fully refundable, meaning taxpayers will be able to obtain an additional federal tax refund of up to $7,500 even if they have no other tax liabilities.
Taxpayers will be able to claim the credit on their 2008 tax return for homes purchased in 2008. For homes purchased in 2009, the IRS will allow the purchasers to file an amended 2008 return to claim the credit.
Repaying the First-Time Homebuyer Credit
The credit needs to be repaid in equal installments over 15 years. Unlike any other tax credit, the first-time homebuyer credit must be repaid over 15 years. The credit will works like this: you'll get your refund when you file the tax return. Then the credit will be repaid as an additional tax on your tax return for the next fifteen years. For the maximum $7,500 credit, this works out to annual repayments of $500 per year. As CCH notes in their tax briefing, this tax credit amounts to an interest-free 15-year loan for first-time homebuyers.
The credit will also need to be repaid in full if the taxpayer sells the house within the fifteen-year repayment period. The credit also needs to be repaid in full if the property is no longer the taxpayer's primary residence. The credit will be disallowed if a taxpayer sells the house before the end of the same year in which the house was purchased.