Buy a home and you get a tax break! Homebuyer Tax Credit

Buy a home and you get a tax break! As part of the Housing and Economic Recovery Act of 2008, a First-time Homebuyer Tax Credit is now available. However, this limited-time tax break ends in mid-2009. A homebuyer tax credit has been available for first-time homebuyers in Washington, D.C. for many years, and now first-time homebuyers nationwide can take advantage of a similar benefit.

Who is Eligible?
First-time homebuyers who purchase a principle residence on April 9, 2008 and before July 1, 2009 are eligible for the credit. A first-time homebuyer is someone who has not owned his/her principle residence for a 3-year period before the date of purchase, and someone who has never taken advantage of the DC first-time homebuyer credit. In the case of married couples, both must be first-time homebuyers. For other groups purchasing a home, the statute is unclear. Purchasers should consult a tax advisor.

How does it work?
The credit directly reduces the total amount of taxes owed and is refundable. When the buyer files his/her taxes, for the year he purchased his home (2008 or 2009), he will be able to subtract the amount of the credit from his Federal income tax liability, increasing his refund or reducing the amount he owes.

How big is the tax credit?
The tax credit is equal to 10% of the purchase price of the home up to $7,500. The full credit is available for single buyers whose adjusted gross income is less than $75,000. If the buyer’s adjusted gross income is greater than $75,000 and her home purchase qualifies her for the full credit

What about Repayment?
The tax credit is not completely free money for buyers to keep. It has a payback provision that makes it similar to an interest free loan. Two years after the credit is claimed, buyers begin repayment so that the credit is paid back in full over the course of 15 years. For those qualifying for the full credit, the payback amount is $500 per year. Those getting less than the full credit pay equally over the 15 years (which is a rate of 6.67% per year). If a qualifying home is resold before the credit is repaid, the seller will have to immediately pay the outstanding balance of the credit. If the home is sold at a loss, then nothing more is owed.

What’s valuable about a credit you have to repay?
Money today is worth more than an equal amount of money in future, which economists call the time-value of money. First, money loses its purchasing power over time due to inflation. Second, you can use the money today to earn interest and repay the principal later-all the while keeping the interest for yourself. For this reason, multimillion-dollar lottery winners prefer taking a lower lump-sum amount than the multimillion dollar amount spread out over many years. Real examples in the PDF will help you illustrate this point to potential buyers.
Are there other conditions I should know about?

* Buyers cannot claim both the DC and the national First-time Homebuyer tax credit
* Purchases by non-resident aliens and purchases financed by proceeds from a qualified mortgage issue are not eligible.
* Any single family residence located in the United States that will be used as a principal residence is eligible. Generally, this is the place where an individual spends most of his/her time. This includes single-family detached housing, condos or coops, townhouses or any similar type of new or existing dwelling.
* The credit will not result in an individual owing additional federal taxes under the Alternative Minimum Tax.
* Home purchases between relatives and other gifts of residences are not eligible for the credit.
* Other tax benefits of homeownership are still in place. Mortgage interest deduction, capital gains tax exclusion, and property tax deduction are some well-known examples.

For more specific questions about the tax implications of the credit, please consult a tax professional.

Thanks for visiting my online real estate resource. Let me know if you are ever in need of assistance with your real estate needs. Please bookmark this site and return often for future reference and access to trend-focused topics and ideas. Whether you are a first time buyer or an experienced investor, you will find useful information about how to choose the "right" property, making an offer, negotiating,financing, mortgage rates, moving, and everything involved in making an informed real estate decision in today's market.

Copyright © 2017 Neev Realty. Neev is a registered trademark licensed to Realty Service LLC. An Equal Opportunity Company. Equal Housing Opportunity. Equal Housing Opportunity
The brokerage, Realty Service LLC licensed in commonwealth of virginia (Lic # 0226023435) assumes no responsibility nor guarantees the accuracy of this information and is not engaged in the practice of law nor gives legal advice. It is strongly recommended that you seek appropriate professional counsel regarding your rights as a homeowner.

Our real estate agents are Realtors and members of the Virginia Association of Realtors, National Association of Realtors and the Northern Virginia Association of Realtors, based in Fairfax County Virginia, serving all Northern Virginia.

Most of the information above is provided is believed to be accurate, but should not be relied upon without verification.