Are You Eligible for the $7,500 Housing Tax Credit?

Did you know that you may be eligible for a $7,500 tax credit if you purchased your first home (even if you were not a first time home buyer, you may still be eligible – so read on) in 2008 and into 2009?  Well, it isn’t exactly a tax credit, but it is a still a great opportunity for those that are eligible.  Throughout this post I will explain the details of this “tax credit” and how it works so that you can determine if you are eligible for this opportunity.

So What Is This “Tax Credit” Anyway?

The Housing and Economic Recovery Act of 2008 provides the opportunity for those people who purchase their first home between April 9, 2008 and June 30, 2009 to be eligible for a federal tax credit up to $7,500.  The “tax credit” is a refundable tax credit, which basically means that the credit must eventually be repaid to the government.  What this means is that if you would typically receive a tax refund of $500 based on your 2008 taxes, if you are eligible for this credit, your refund would now be $8,000 or $500 refund plus the credit of $7,500.

Just First Time Home Buyer’s, Huh?

Yes, according to the federal government’s definition.  The government’s definition of a first time home buyer is anyone who has not owned a home for 3 full years.  So if you sold your home more than 3 years prior to purchasing a home within the time frames eligible for this credit, you will be eligible for the tax credit.

How Much Will I Get?

The amount of the tax credit depends on your income, purchase price and those involved in the purchase.  The maximum amount of the tax credit is the lesser of 10% of the purchase or the maximum $7,500.  The maximum credit is available to those with incomes lower than $75,000 per year and starts to be reduced as your income exceeds this amount, up to an income of $170,000 for a joint tax return.  For details on the amount of the tax credit if your income exceeds the $75,000 for an individual or $150,000 for a joint return, a great resource is the National Association of Home Builders who created a great FAQ site on this tax credit.  Check out #8 on the FAQ page.

But the “Tax Credit” Has to be Repaid?

Yes, this is a refundable tax credit, which means it will need to be repaid to the government.  The amount you must pay will vary based on the amount of credit you received, but let’s go through an example for a $7,500 tax credit.

• Repaid at 6.67% each year over 15 years
• 6.67% of $7,500 is $500.25/yr
• If the house is sold prior to the repayment, the remaining balance is due in that year if sufficient capital gain is realized

Another thing to be aware of related to the repayment is that the repayment does not begin until 2 years after the credit is claimed on the taxes.  So if you claim it in 2008, the repayment would start in 2010 but if it was claimed in 2009, the repayment would begin in 2011.

If I have to Repay it, Why Would I Even Bother?

Some customers of mine have asked this question, and it seems like a legitimate question to me.  I guess I look at this way – Where else can I get a 0% unsecured loan with no payments for 2 years to be repaid over 15 years??  I don’t know of any.  If anyone else does, please email me immediately!   Take this credit, pay off higher interest debt to save you, potentially thousands of dollars, and put yourself into a better financial siutauation.  If you have no debt, invest it in a secure place and make money with the help of the government.

What are the Restrictions?

There are some restrictions to this program.  I don’t think it owuld make sense to list them all out here but I will name a few that I felt were the most important:

• Mortgage Revenue Bonds – If you purchased the home with the use of a mortgage revenue bond, you are not eligible for the tax credit.  Mortgage revenue bonds are normally associated with down payment assistance programs.  If you used a down payment assistance program, ask your lender if it was a mortgage revenue bond loan product.
• Principal residences only – if you purchased your first home, but it was for a rental or fix and flip and was never occupied by you, then you are not eligible for the tax credit.
• We’ve already mentioned this but those individuals with incomes over $95,000 or a joint tax return with adjusted gross income exceeding $170,000 are not eligible.

More Information

For more information on this tax credit, I found two great sites:

• National Association of Home Builders
• National Association of Realtors

If you are looking to buy your first home, I can assist you in identifying all of the assistance programs, special incentives and opportunities available to you.  Just give me a call and we can get started right away.

Lending a Hand,

Scott Wynn