If you have recently purchased your first home, or are considering doing so in the next year, here is good news for you!
One of the programs included in the new housing bill signed by President Bush recenlty is a $7,500 homebuyer tax credit. While this tax credit has benefits, it is important to understand that this “tax credit” is actually an interest-free loan which will be repaid over a period of 15 years.
Below is a Q&A that summarizes the program’s features that was put together by the National Association of REALTORS®.
Q: What is the Amount of Credit?
A: 10 percent of the cost of home, not to exceed $7,500
Q: What properties are eligible?
A: Any single-family residence (including condos, co-ops) that will be used as a principal residence.
Q: Is the tax credit refundable?
A: Yes. It reduces income tax liability for the year of purchase. Claimed on tax return for that tax year.
Q: Is there an income limit?
A: Yes. The full amount of credit is available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). The benefit of the credit phases out above those caps ($95,000 and $170,000, respectively).
Q: Is this program for first-time homebuyers only?
A: Yes. A portion (6.67 % of credit) has to be repaid each year for 15 years. If the home sold before 15 years, then the remainder of credit recaptured on sale.
Q: What is the effective date of the program?
A: The credit is good on home purchases on or after April 9, 2008
Q: When does the program conclude?
A: July 1, 2009
Q: What is the tax credit’s interaction with Alternative Minimum Tax?
A: The credit can be used against AMT, so credit will not throw individual into AMT.