A $7,500 nudge for first-time homebuyers
Housing bill sweetened with tax credits
| Washington Post Writers Group
That's the eligibility period for the home-purchase tax credit created by the housing bill approved last week by Congress.
If you have not owned a house in the last three years—or are considering buying your first home—and can close before July 2009, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 for single filers).
The credit is expected to benefit hundreds of thousands of buyers. Here's a quick overview:
Buy any house—new, old, any location or condition and any price range —and the IRS will lop up to $7,500 off your tax bill for either this year or next.
For example, if you're an eligible buyer of a home this year and you owe the IRS $4,000 on your 2008 income tax bill, your $7,500 tax credit could wipe that out and get you a $3,500 refund.
It's what the government calls "refundable."
If you own a home now, you're not eligible. But if you sold a home more than three years ago and now rent or have never owned a home, you qualify. Close on a house through June 30, and you can claim a credit of up to 10 percent of its purchase price, up to $7,500.
If your adjusted gross income exceeds $150,000 for couples or $75,000 for singles, however, the credit phases down.
Further, you don't qualify if you are a non-resident alien, financed the property using a state or local housing agency tax-exempt bond mortgage, do not plan to use the house as your principal residence or are buying in the District of Columbia using the city's first-time buyer program.
Unlike with some past tax-credit programs, beneficiaries must repay this one.
Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers must make pro-rata repayments on their federal filings. For the full $7,500 credit, that would be $500 a year for the 15 years.
If you sell the house with no gain before the credit's repaid , you won't have to pay the credit from the proceeds.
If you have a net gain, the repayment cannot exceed that amount. In other words, the federal government is taking on the risk if your house doesn't appreciate.
This way, the tax credit functions very much like an interest-free loan. You pay the principal back, but there's no interest charge to you.
Rob Dietz, an economist for the National Association of Home Builders, says the new credit not only will pull first-time buyers into the market but also have a powerful "multiplier effect" as thousands of sellers of these credit-assisted houses purchase replacement homes.
To claim the credit, you simply request it on your tax return for 2008 or 2009. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return.
The NAHB also plans to launch www.federalhousingtaxcredit.com with additional information for consumers.