A new $7500 federal tax credit was created earlier this year for first time home buyers or those who have not owned a home in the last 3 years. It is actually a zero interest loan that you would have to pay back over 15 years. The details are complicated, this is the IRS after all, but here are the basics.
The Good News:
It is a refundable tax credit. A credit is better than a deduction because it comes right off your total tax bill. For example, if you file your taxes and owe the government $10,000, you would apply the credit and only pay $2500. Or, if you owe no taxes or expect a refund, your refund would be increased by $7500.
If you buy (or already bought) a home between April 9, 2008 and July 1, 2009 and you earn less than $95,000 (single) or $165,000 (married) and it is your first home purchase ever or you have not owned a home in the past 3 years, you may qualify for some or all of the federal tax credit.
The Bad News:
It is important to remember that you will have to pay it back beginning in about 2 years. There is no interest and you would have 15 more years to pay. So, if you received the full $7500 credit against your taxes on April 15, 2009, you would begin repaying in 2011 at the rate of about $500 per year for 15 years.
Fun Fact #1:
The IRS has not determined exactly how it will be collected. I guess that is why they are not going to ask for any payments for 2 years. There is a movement by the National Association of Realtors and others to make it a true credit that would not have to be paid back, ever. But, that is not how it is written right now.
Fun Fact #2:
If you sell your house before it is paid back, the amount left that you owe would be deducted from your proceeds from the sale. However, if you sell the home at a loss, some or all of the debt would be forgiven.
If you are planning to buy a home between now and July or if you bought a home after April 9th of this year, it is definitely worth checking this out.
Blog via elephant’s favorite, Liz Benson!