First-time home buyers are now eligible for a tax credit of up to $7,500 under the U.S. Housing and Economic Recover Act of 2008.
To qualify for the tax credit, purchasers must close on a home between 09 April 2008 and 01 July 2009. Married couples with incomes up to $150,000 qualify for the full tax credit, as do single taxpayers with incomes below $75,000. (Those with higher incomes may be eligible for a partial tax credit.)
The tax credit is equal to 10% of the home's purchase price, but is capped at $7500:
- If you purchase a $60,000 home, you qualify for a $6000 tax credit.
- If you purchase a $75,000 home, you qualify for a $7500 tax credit.
- If you purchase a $90,000 home, you qualify for a $7500 tax credit.
There's one huge caveat to this program: This tax credit isn't really a tax credit — it's an interest-free loan from the U.S. government. From the FAQ at National Association of Home Builders mini-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 the 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 filed.
If the home owner 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.
Does it make sense to take this tax credit if you qualify? Shawn wrote yesterday looking for advice: “I recently bought a house and was informed about this ‘tax credit'. It turns out that I am eligible. Do you think it would be a good idea to take advantage of this?”
We've been taught to be wary of anything that seems too good to be true. Still, I can't think of a reason not to do this if you can. You're basically saying, “Okay, I'll pay the government an extra $500 in taxes for the next fifteen years in exchange for them giving me $7500 now.”
Would you take this tax credit? If you're thinking of buying a home, does this program influence your decision?
Note: If you've considered buying a home but don't know where to start, check out the U.S. Department of Housing and Urban Development's common questions from first-time homebuyers. This document provides excellent information about the homebuying process.