Recently, the IRS published guidance on the new Tax Credit to Aid First-Time Homebuyers that was part of the Housing and Economic Recovery Act of 2008.
Below are some key points to know about the credit:
- This credit is available for a limited time. The buyer must purchase their home after April 8, 2008, and before July 1, 2009.
- As this is a tax credit (as opposed to a deduction), it reduced a taxpayer’s bill or increases a taxpayer’s refund dollar for dollar.
- The credit is “refundable.” This means that even if you owed no tax for the year, you still get the credit refunded to you. In essense, refundable credits allow many taxpayers to pay a “negative” amount of tax, many times receiving thousands of dollars in what is called a “refund” even though they paid nothing in.
- Unlike most other refundable credits, the Tax Credit to Aid First-Time Homebuyers must be paid back. For example, if you receive the maximum credit of $7,500, you would have to pay back $500 (1/15th of the amount) each year for the next 15 years.
- First-Time Homebuyer does not mean First-Time Homebuyer. What it really means is anyone who has not owned a main home (excluded rentals and vacation homes) for three years prior to the purchase can qualify for the credit.
- The credit is 10% of the purchase price of the home, with a maximum credit of $7,500 if single or married filing jointly.
- The credit is not available if your income is too high. Phaseouts start at $150,000 for married couples, and $75,000 for other taxpayers.
For all of the rules, please see IRS-2008-106.