Tuesday, August 19, 2008

New Tax Credit for First-Time Home Buyers

First, let me clarify what qualifies as a first- time home buyer. Under the new housing bill, home buyers who have not owned a home in the last three years will be classified as first-time home buyers. These buyers will be eligible for a tax credit equal to 10 percent of the property up to a maximum of $7,500.

Here’s how it works:

  • The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.

  • This program is actually a loan, which home buyers must repay over 15 years at zero percent interest beginning in the second year after they purchase the home. A home buyer who qualified for the whole credit would pay an additional $500 in income tax for 15 years or about $41.67 per month. If you should sell before 15 years you will owe the government the remaining balance.

  • The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.

  • High-income home buyers don’t qualify: Eligibility begins phasing out for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles and $170,000 for married couples filing jointly.

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