On July 30, 2008 the Housing Assistance Tax Act of 2008 was signed into law offering a $7,500 Refundable Tax Credit to first-time home buyers purchasing a single family residence, condominium or townhome. This is a great advantage to those first-time buyers who have or who are looking to purchase a home in the near future. According to the law a “first-time home buyer” is defined as an individual who has not owned a principal place of residence for the last three years. To be eligible for this tax credit, a home must be purchased on or after April 9, 2008 and before July 1, 2009 and used as the buyer’s principal residence.
A first-time home buyer may qualify for the tax credit if their modified adjusted gross income (MAGI) is less than $75,000. For married couples filing a joint return, the income level doubles to $150,000. A buyer may also qualify for a partial credit if their MAGI is between $75,000-$95,000 or $150,000-$170,000 for joint returns.
This incentive is not a deduction but a one-time tax credit. It is essentially an interest-free loan, repaid over a 15 year period. So if a buyer receives the full $7,500 credit, they would technically owe $500 per year for 15 years. However, a buyer would not have to begin repayment until two years after the tax credit is claimed. So if a buyer claims the credit in 2008, they would not begin repayment until 2010 taxes are filed.
How does the tax credit work? Let’s say a first time home buyer owed $5,000 in taxes for 2008. The buyer would not write a check to the IRS, but would receive a check back for the remaining $2,500. If a buyer instead owes $10,000 in taxes, after taking the credit they would owe $1,500.
For additional information and frequently asked questions check out: www.federalhousingtaxcredit.com.
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