The Facts About the First Time Home Buyer Tax Credit
February 3rd, 2009 categories: Buying a Home
The First time home buyer tax credit is simple enough to understand. As part of the economic recovery act of 2008, first time home buyers, actually anyone that has owned their primary residence for less than three years prior to their new home purchase, are eligible to receive a one-time tax credit that is equal to 10% of the purchase price their home up to $7,500.
What’s a tax credit?
It is not free money for you to keep. This first time home buyer tax credit has a payback provision that makes it similar to an interest free loan. Basically, two years after the credit is claimed, the buyer(s) must begin repaying the tax credit over the course of 15 years. One thing to note: If your home sales for a loss before the loan is repaid, no additional payment is required. If the home is sold for a profit, the remainder of the credit will have to be paid back in the same tax year as the home sales.
Why is this valuable to a new home buyer?
Money today is worth more than money in the future. It’s called the time-value of money and it’s a basic concept of economics. A $7500 interest free loan (which is basically what this is) is worth significantly more than $7500 over the next 15 years. It’s the same thing as lottery winners taking a smaller lump sum payment today than being paid the full amount of their winnings over 20 or 30 years. This tax credit gives home buyers money to pay for things now!
When is this tax credit in effect?
It is effective from April 9th, 2008 thru June 30th 2009. If you have purchased a home or are planning to purchase a home in this time period, the first time home buyer tax credit may be for you.
Is this too good to be true?
While this really is a great deal for many new home buyers, many are wondering if this tax credit is too good to be true. As a professional real estate agent I can tell you, this program is definitely worth looking into. There are a couple of situations where a new home buyer will not qualify. For any individual whose adjusted gross income exceeds $75,000 the credit phases out completely over $90,000 in adjusted gross income. The same goes for married couples filing jointly that make over $150,000.
Ask a qualified, professional Realtor, accountant, or attorney if this tax credit can benefit your situation. Remember that even if you currently own your home, if you have lived in it for less than three years, you are eligible for the tax credit!
A great Realtor in my office pointed out that I needed to write a post about this first time home buyer tax credit and how it works. If you have any questions about the tax credit and how it can work for you or if you need help buying your first home, please call Michelle Osborn at (479) 544-8236 or email her at Michelle@EXITprorealty.net to find out more. Tell her Ben sent you.
