Steve DePalma asked: The Housing and Economic Recovery Act of 2008 offers some amazing benefits to first-time home buyers. This also applies to some one who has not owned a home in the past three years. This credit is almost too good to be true, so please pass this information on to anyone who is a first time buyer or who is buying for the first time in three years.
The time frame for the purchase to qualify for this credit is from April 10th, 2008 to June 30th, 2009.
The government allows you to take a credit or $7,500 off their tax bill to the IRS, although it must repaid at a later time. In essence, what you are getting is an interest free loan. But note, this is not a current deduction. Instead it is a credit. A credit differs from a deduction. A credit gets taken off the bottom line of taxes owed. A deduction decreases the amount of taxable income. A credit is a much more powerful benefit.
Another benefit of this credit is the timing of when it is being offered. There is a glut of inventory and home prices have dropped significantly. Therefore, it is a buyers market and a great time to buy, especially in light of this new credit being offered to first time home buyers.
The credit can be taken against either your 2008 0r 2009 taxes. The credit is $7500 for a married couple. If you file your tax return as single, then your credit would be $3,750. The credit is 10% of the purchase price of your home, up to a maximum as listed above. The credit begins phase out at $150,000 if married and $75,000 adjusted gross income if single.
This credit must be repaid over an extended period. The taxpayer must pay back the credit over a 15 year period. The taxpayer will pay back the credit pro-rata over that period. On average, the payback would amount to $500 per year for years 2 through 16 following the purchase. An example would be a married couple taxes the tax credit of $7,500 this year. For the next 15 years they would pay back the credit on their tax returns in an amount of $500 per year. So in essence, the credit is the governments way of lending you $7,500 interest free for the next 15 years. You pay back 6.67% of the loan each year subsequent to the purchase.
In addition, the federal government is taking the risk that your home will go up in value. If you sell your home before the end of the 15 year repayment period, and you do not make a profit, you will not be required to payback the remainder of the credit.
In summary, this credit is an interest free loan. It should inspire buyers to stimulate the housing market out of the current stagnation that it is currently in. That was the purpose of this credit. To give buyers an opportunity to purchase a home easier and in the process move the housing market in the right direction. In addition, this should slow down the amounts of foreclosures. This is a great opportunity for both first-time home buyers as well as those who want to “move-up” to something beyond their first home (as long as they have not owned in the past three years.)
Steve DePalma, CPA is a Certified Public Accountant in Breckenridge, Colorado with more than 25 years of experience in Accounting, Real Estate and Investing. To read more articles that I have written on real estate and investing, visit our website at http://www.summitmountainhome.com. Let us help you find your Summit Mountain Home.
Billy
