The Housing and Economic Recovery Act of 2008 gives first time home buyers up to a $7,500 tax credit incentive to purchase a home between April 9th, 2008 and July 1st, 2009. Law makers offered the incentive to jump start entry buyers, which can have a ripple effect throughout the markets. And it may well do just that!
Unlike a tax deduction, which only saves a tax payer a partial amount, the Tax Credit program is a dollar for dollar reduction in federal taxes due, up to $7,500.
So it works like this: Let’s say a first time buyer owes Uncle Sam $6,000 in federal taxes– under the new program, eligible tax payers would see the $6,000 tax bill wiped out, and would still receive a check for the additional $1,500. A tax payer who was owed a refund of $2,000 would now receive a refund of $9,500! (Based on a married filer, making less than $150,000 a year.)
The program does have a payback provision, meaning recipients are required to pay back up to $500 each year to the IRS, for up to 15 years. But that essentially means a 15 year tax free loan from the government! Not bad, eh! And as an added incentive, if you sell the home and do not make a profit, the credit is forgiven. Alternatively, if you were to sell and make a small profit, only the amount of profit would be owed to the IRS, with the remaining balance forgiven!
The tax credit will benefit first time home buyers’ (defined as someone who has not owned in the past three years) in several key ways. Buyers may find they are able to put down larger down payments on loans, knowing they will owe less on their Federal tax bill in 2008/09. That results in lower monthly payments, and less expensive mortgage insurance premiums! But the program may also make properties which need a little work more enticing, as the cost to make repairs will be offset by the credit program. (Can you say new roof and AC??)
For more information on the details of the tax credit, visit The National Association of Home Builders’ Federal Housing Tax Credit website. There you can find the program overview, as well as “Frequently Asked Questions” that will help you understand the program better.
