Tax credit for first-time home buyers in effect

Prospective first-time home buyers who have been unable to get off the fence now have a significant financial incentive to explore the opportunities available in today’s housing market.

H.R. 3221, the Housing and Economic Recovery Act of 2008 — which passed through Congress and was recently signed into law by President Bush — allows first-time home buyers to take a $7,500 tax credit from the purchase of a single-family home, townhome or condominium apartment.

The National Association of Home Builders is working to educate consumers on this tax credit and has created an informative Web site, www.federalhousingtaxcredit.com. The site includes details and questions and answers on how home buyers can use the credit.

Any home buyer who has not owned a home during the past three years and is a U.S. citizen who files taxes is eligible to participate in this program.

To qualify, buyers must actually close on the sale of the home on or after April 9, 2008 and before July 1, 2009. While the period is retroactive, it will also carry through this fall and into the peak home buying season next spring and into the early summer.

The program does have income limits. Single or head-of-household filers can claim the full $7,500 credit if their adjusted gross income (AGI) is less than $75,000. For married couples filing a joint return, the income limit doubles to $150,000.

Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit. The same applies to married couples who earn between $150,000 and $170,000.

The credit is not available for single taxpayers whose AGI is greater than $95,000 and married couples with an AGI exceeding $170,000.

A refundable credit means that if a taxpayer pays less than $7,500 in federal income taxes, the government will write them a check for the difference. For example, if $5,000 in federal taxes is owed, the taxpayer would pay nothing and a $2,500 payment would be received from the IRS. If a qualifying home buyer were owed a $1,000 tax refund, they would receive $8,750.

Buyers can take the tax credit on their 2008 or 2009 tax return. Those who close in 2008 take the credit on their 2008 return. Buyers in 2009 have the option of taking the credit on their 2008 or 2009 returns.

The tax-credit program also has payback provisions. The credit essentially serves as an interest-free loan to be repaid over 15 years. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.

If there is insufficient profit, then the remaining credit payback would be forgiven.

If you would like more information on the home buyer tax credit or other provisions of the recently enacted legislation, please contact the Spokane Home Builders Association at (509) 532-4990.