Many of you reading this may be familiar with the recent passing of the Housing and Economic Recovery Act of 2008.  You may click here to read my previous blog posting to get a basic understanding of how this newly passed law effects you. One of the major provisions provides a $7,500 tax credit to qualified first time home buyers, as well as those who have not owned a home in the last three years. I would like to explain this a little bit further so you, as a first time home buyer, can better understand how you can benefit from this.

I’m going to answer this question in a Who, What, When, and How format:

WHAT is the tax credit?

Essentially, the tax credit is an interest free loan of up to 10% of the purchase price of a home or $7500 whichever amount is smaller. Unlike previous tax credits issued by the government in years past where the credit didn’t have to be paid back, this one must be paid back over a period of 15 years at $500 per year. The $500 will be deducted from, or added to your amount on your tax return when you file. You, as a first time homeowner, don’t have to take the full amount of the tax credit but are allowed to use up to $7500. You do not have to start paying back the government until 2 years after you claimed the credit on your tax returns. An important note on the repayment, if you sell 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. Essentially, the tax credit is tied to the home you bought that qualified for the tax credit.

So WHO is eligible for this tax credit?

First time home buyers purchasing any kind of home whether it’s a builder’s home, resale, or custom “built on your lot” home are eligible for the tax credit. The law defines “first-time home buyer” as a buyer who has not owned a principal residence during a three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit. Ownership of a vacation home or rental property not used as a principal residence does not disqualify a buyer as a first-time home buyer.

There are income requirements as well. To qualify for the full amount of the tax credit there is a $75,000 modified adjusted gross income (MAGI) limit for singles and $150,000 limit for married taxpayers. There are scenarios where you can be slightly above those limits, but it depends on your income. Partial credits of less than $7,500 are available for some taxpayers whose MAGI exceeds the phase out limits. The credit becomes totally unavailable for individual taxpayers with a modified adjusted gross income of more than $95,000 and for married taxpayers filing joint returns with an AGI of more than $170,000.

Modified adjusted gross income (MAGI) as defined by the IRS. To find it, a taxpayer must first determine “adjusted gross income” or (AGI). AGI is total income for a year minus certain deductions (known as “adjustments” or “above-the-line deductions”), but before itemized deductions from Schedule A or personal exemptions are subtracted. On Forms 1040 and 1040A, AGI is the last number on page 1 and first number on page 2 of the form. For Form 1040-EZ, AGI appears on line 4 (as of 2007). Note that AGI includes all forms of income including wages, salaries, interest income, dividends and capital gains.
To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.

WHEN can I qualify for this tax credit?

If you purchased a home between April 9, 2008 and before July 1, 2009. For the purposes of the tax credit, the purchase date is the date when closing occurs. This means the qualifying date is retroactive as well. Meaning if you purchased a home in between April, 9th 2008 and July 2008 when this bill actually passed in congress you still qualify for the tax credit. You can claim the credit on either your 2008 or 2009 tax-return regardless of when you purchased the property, so long as you purchased the property between April 9, 2008 and before July 1, 2009.

HOW do I go about claiming my $7500 Housing and Economic Recovery Act of 2008’s tax credit?

Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. No other applications or forms are required. No pre-approval is necessary; however, prospective home buyers will want to be sure they qualify for the credit under the income limits and first-time home buyer tests.

Now you may be asking yourself, “what purpose does the government hope this tax credit will achieve?” Well per my sources Congress’s intent was to provide as large a financial resource as possible for home buyers in the year that they purchase a home. In addition to helping first-time home buyers, this will maximize the stimulus for the housing market and the economy, will help stabilize home prices, and will increase home sales. The repayment requirement reduces the effect on the Federal Treasury and assumes that home buyers will benefit from stabilized and, eventually, increasing future housing prices.

If you are a first time home buyer please visit our website at www.houstonicon.com . Right now we are offering $1000 Lowe’s gift cards to our Houston area new clients. Please visit our new construction page on my website for more information concerning this offer for new clients and first time home buyers. You will also find tons of information about Houston area new construction home builders and more information about our $1000 Lowe’s gift cards by visiting one of our past blog entries concerning this subject. If you are interested in saving $15,000-$25,000 on your next new construction purchase, then check out our informative website to find out how. Or if you would like to speak with one of our expert real estate consultants Jeremy Larkin or Johnny Schiro directly then please call 281-296-6226.

If you have any questions please contact me at my website or email me at larkin@houstonicon.com

Sources and information furnished by: NAHB and CNN Money

share this post