First Time Homebuyers Eligible for $7,500 Tax Credit

The U.S. Congress and President Bush recently passed the Housing and Economic Recovery Act of 2008. The legislation provides a first-time homebuyer tax credit of up to $7,500 (10 percent of the cost of the home, not to exceed $7,500).

Eligible properties include any single-family residence (including condos and co-ops) that will be used as a principal residence. Homebuyers must not have owned a principal residence within the last three years.

The tax credit means that if you are a first-time homebuyer and would otherwise owe $7,500 in taxes, then for the year in which you purchased the home, you would owe the IRS nothing.

The tax credit terminates on July 1st 2009. However, first-time homebuyers are eligible if they purchased a home after April 9th 2008.

The tax credit has an income limit: individuals earning no more than $75,000 or couples earning no more than $150,000 on a joint return. The credit is phased out above those caps ($95,000 and $170,000 respectively).

The tax credit must be repaid, over a period of 15 years. For instance, if you earn a credit of $7,500 then you would pay $500 per year over 15 years. This amounts to a zero interest loan from the federal government. If the home is sold before 15 years, then the remainder of the credit would be recaptured upon the sale. If the home does not sell for enough to repay the credit, then it is forgiven.

For more information, please visit www.federalhousingtaxcredit.com.