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The Housing and Economic Recovery Act of
2008 was just signed into law. One of the major provisions
provides a $7,500 tax credit to qualified First Time Home
Buyers (as well as those who have not owned a home in the
last three years).
Here's an explanation of how the new
Housing Bill works for first time homebuyers:
TAX CREDIT ($7,500) WORKS LIKE AN INTEREST FREE LOAN
Purchasers can shave as much as $7,500 off their IRS bills,
though it must be repaid.
WASHINGTON -- Anyone who's been sitting on the sidelines
hesitant to jump into the housing market until conditions
settle down should know these dates: April 9, 2008, through
June 30, 2009.
They mark the eligibility period for the home purchase tax
credit created by the housing bill enacted last week. If
you have not owned a house during the last three years --
or are considering buying a first home -- and you close
on a purchase before the end of next June, you may be eligible
for a credit of as much as $7,500 against your federal taxes
for 2008 or 2009 ($3,750 if you file taxes as a single person).
The new tax credit is expected to benefit hundreds of
thousands of buyers. Here's an overview of the specifics.
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The basic idea: To jump-start housing
sales and clear out stocks of unsold real estate, Congress
is offering tax credits to encourage new purchasers.
Buy any house -- new, old, in any location or condition
for any price -- within the designated time period and
the IRS will cut as much as $7,500 off your tax bill
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 total 2008 income
tax bill, your $7,500 tax credit could wipe out everything
you owe plus get you a $3,500 refund.
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Eligibility rules: If you own a home
now, you're not eligible. If you sold your home more
than three years ago and now rent, you are eligible.
The same is true if you've never owned a home. Close
on a house before next June 30 and you can claim a credit
of up to 10% of the purchase price to a maximum of $7,500.
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If your adjusted gross income exceeds
$150,000 ($75,000 for singles), the credit maximum begins
to phase down. You cannot claim the credit if you financed
the property using a state or local housing agency's
tax-exempt bond mortgage, or do not plan to use the
house as your principal residence.
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Payback: Unlike some past tax credits,
this one must be repaid over an extended period. Starting
in the second tax year after purchase and continuing
for up to 15 years, taxpayers are expected to make pro-rata
repayments to the government on their federal filings.
Over a 15-year payback period for the full $7,500 credit,
the cost would be $500 a year.
If you sell the house before the end of the repayment period,
and you have no gain on the sale, you won't be expected
to repay the remainder of the credit from the proceeds.
If you have a net gain, the "recapture" cannot exceed the
amount of your gain. In other words, the federal government
is taking on all or much of the risk that the value of your
new house won't increase over time.
At its core, the new tax credit works very much like an
interest-free loan. You pay the principal back in increments
over time, but there's no interest charge to you.Quick
Reference Guide:
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FEATURE
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H.R. 3221
Housing and Economic Recovery Act of 2008
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Amount of Credit
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Ten percent of cost of home, not to exceed $7500
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Eligible Property
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Any single‐family residence (including condos, co‐ops)
that will be used as a principal residence.
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Refundable
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Yes. Reduces income tax liability for the year of
purchase. Claimed on tax return for that tax year.
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Income Limit
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Yes. Full amount of credit available for individuals
with adjusted gross income of no more than $75,000
($150,000 on a joint return). Phases out above
those caps ($95,000 and $170,000, respectively).
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First Time Home Buyer
Only
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Yes. Purchaser (and purchaser’s spouse) may not
have owned a principal residence in 3 years previous
to purchase.
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Recapture
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Yes. Portion (6.67 % of credit) to be repaid
each year for 15 years. If home sold before
15 years, then remainder of credit recaptured on
sale.
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Effective Date
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Purchases on or after April 9, 2008
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Termination
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July 1, 2009
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Interaction with Alternative
Minimum Tax
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Can be used against AMT, so credit will not throw
individual into AMT.
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Please consult your tax accountant to be
certain you meet all the requirements. Your accountant
will have a simple form to fill out on your 2009 tax return
and you will be granted the refund. This is not a
deduction but a refund.
Download Tax Form for Your Accountant:
Click Here
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