Homebuyer Tax Credit

By Elizabeth Hotz, Denver First Time Homebuyer Specialist

First Time Homebuyer Tax Credit

When President Bush signed the Housing and Economic Recovery Act of 2008, many questions arose. One of the most frequent questions I get from my first-time homebuyer’s is regarding the first-time homebuyer’s tax credit. Many real estate blogs across the country have written about this credit. Some have been favorable and some financial blogs have yawned  their way through a review.

Under the new law, if you buy any kind of home (new or resale, condo or single family) as a first-time homebuyer between April 9, 2008 and July 1, 2009, you are eligible for a tax credit - a maximum of $7,500 for marrieds filing jointly or $3,750 for singles. This credit is different than a deduction, as it actually reduces the amount you owe Uncle Sam dollar for dollar, rather than just reducing the amount of your income that is taxable.

This credit does not apply to everyone. You can only qualify if the following apply to you:

1) You (nor your spouse) have NOT had any ownership interest in a principle residence in the past 3 years.

2) You are single and make less than $95,000 annually (it starts phasing out at $75,000).

3) You are married and make less than $170,000 jointly (it starts phasing out at $150,000).

4) You are a US citizen.

Ahhh… and here’s the catch: This credit had a 15 year recapture, which means it must be paid back to the US Treasury in 15 equal installments, beginning the second taxable year after the year that the credit is allowed (think 2010). It’s almost like an interest-free loan directly from the government to you. Keep in mind that if you sell the house before you have paid off the balance of the loan, then the entire balance is due. However, if the amount of money you gain as profit from the sale of the house is less than your remaining balance, you only have to repay up to the amount you gained from the sale. The payback is only forgiven if you take a loss in the sale of your home or if you die before the balance is paid off.

Denver BuyersI work often with first time homebuyers like Tom and Kristin who just bought a home in Denver’s Wellshire neighborhood near the University of Denver. I doubt they will take advantage of this credit but they can. It’s just that the credit is not a one-way street. It does have to paid back over time.

I have mixed feelings about this credit. I’ve heard it was intended to relieve the burden for first-timers to have to pay closing costs or the initial down payment - which makes sense. I also like that it will lessen the blow of both state and property tax. That being said, this credit is basically a debt in sheep’s clothing,The last thing any new homebuyer needs is more debt after buying a home.

October 3, 2008 | Filed Under Denver Real Estate News, Home Buying Issues, Home Loans 

Comments

2 Responses to “Homebuyer Tax Credit”

  1. CHRISTIAN on November 13th, 2008 10:47 am

    Just wondering…in studying the government website that details this “interest free loan,” it doesn’t specify that there is a limit of $3750 for single home purchasers as opposed to the $7500 total eligibility amount offered. Do you have different information about this tax credit that we should know about?

  2. Elizabeth on November 19th, 2008 11:52 am

    Hi Christian -

    I found the $3750 figure in this article posted on Forbes.com: http://www.forbes.com/home/2008/08/05/homeowners-taxes-credit-biz-belt-cz_ae_0806beltway.html

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