$7,500 First Time Home Buyers Credit
So by now, you’ve probably heard about the $7,500 First Time Home Buyers Credit that may be applicable to your recent or upcoming home purchase. I’d like to dispel a couple myths about the tax “credit” and set some facts straight for you – before you get too excited.
Myth #1: “All buyers between 4/9/08 and 6/30/09 will be eligible for the tax credit.”
Truth #1: Not so fast – You didn’t really think the government was going to include everybody, did you? The fact is that there are income restrictions that go along with the tax credit. If you’re a single person buying a home alone, you would need to make less than $75,000 in Annual Modified Adjusted Gross Income (MAGI). If you’re a couple buying together, the capped amount is $150,000 MAGI.
Also, you must not have owned a home in the past 3 years, but may have owned a property prior to that time. So if you’re a “true” first time buyer, you’re good. If you owned a home before 2005 but haven’t been on the deed since then, you’re also good. If you have another property or just sold one a year or two ago, well – you’re out of luck.
Remember, the Tax Credit is meant to revitalize the housing market by getting new buyers to purchase homes, and not simply keep real estate agents in business by creating more transactions.
Notice that you must buy the home before July 1st, 2009. So if you’re on the fence about the market, this could help make you start searching for the right place.
Myth #2: “The Government is giving First TIme Home Buyers money, just for buying a home.”
Truth #2: The Government is using the term “Tax Credit” a little bit deceivingly. Instead of thinking in school terms (where you get credit for classes taken) think of it in lending terms. They are giving home buyers money on credit; which means you have to pay it back!
In essence, it’s an interest free loan over a 15 year period. $500 minimum due back to the government each year until it’s paid off, or the property is sold. The nice thing is that you won’t have to start paying the loan back until 2 years after you claim it on your tax returns.
For example: You bough a home Nov. 1st, 2008. You can file for the Tax Credit on your 2008 return and receive the amount towards your taxes due, or receive the overhead in a tax refund. However, you don’t have to begin paying it back until you file your 2010 returns (in early 2011). Pretty sweet, huh?
If you end up selling the home before you’ve paid back the Credit, you will be charged the remaining balance on the HUD closing statement, and/or have to pay the balance from the profit of the sale.
Myth #3: “All First Time Buyers will get $7,500 in tax returns.”
Truth #3: The amount you’ll be credited with is equal to 10% of the purchase price, or $7,500 – whichever is smaller. So if you only bought a home for $50,000, then 10% of that amount would be $5,000 for your Tax Credit. If you bought a home for $100,000, then 10% would be $10,000, but you will only be eligible for the $7,500 Credit, because it’s the maximum amount.
Basically anything over a $75,000 home and you’re maxed out, so don’t go buying the most expensive home thinking you’ll be getting more of a Credit.
Also, note that you won’t simply receive the Credit in a check format. The Tax Credit will first go towards any taxes that are due on your return, and then the left-over amount may be payable to you.
Also remember that whatever amount you receive will have to be repaid over the 15 year period. So just because you only get an over-head amount of $3,000 (because $4,500 went towards your taxes due) you’ll still have to pay the full $7,500 back.
There are many more finer points to the Tax Credit, so please visit the Federal Housing website to see more FAQ’s and info. As always, consult your accountant or a tax professional before making any purchases or applications for the credit.
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