A new home purchase tax credit is available now through a housing bill approved by Congress. If you have not owned a house during the past three years, or are considering buying your first home
, and can go to closing within the qualifying dates, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file taxes as a single person).
If you have closed on a home or will close on a house between April 9, 2008, and June 30, 2009, you may qualify for the tax credit. It can be any house new or old, in any location or condition, and within any price range as long as it is purchased during the designated time period
Basically, Congress is offering tax credits to pull in new purchasers in order to jump-start housing sales and clear out unsold real estate inventories.
Close on a house before next June 30, and you can claim a credit of up to 10 percent of the purchase price of the property up to a maximum of $7,500. If your adjusted gross income exceeds $150,000 ($75,000 for singles), the credit maximum begins to phase down in increments. You cannot claim the credit if you are a nonresident alien, financed the property using a state or local housing agency tax-exempt bond mortgage, or do not plan to use the house as your principal residence. Purchasers in the District of Columbia using the city's first-time buyer credit program cannot double-up and use the new federal credit as well.
After you’ve purchased the home, the IRS will cut up to $7,500 off your tax bill for either this year or next. What’s more, the new home purchase tax credit is what the government calls "refundable." If your tax bill is less than the credit amount, you get the difference back from the Treasury. For example, if you're an eligible buyer of a home this year and you owe the IRS $4,000 on your total 2008 income tax bill, the $7,500 tax credit would not only wipe out everything you but you would also receive a $3,500 refund.
How do you know if you’re eligible? If you own a home now that was closed on before April 9 of this year, you don’t qualify. If you have never owned a home or sold a home more than three years ago and now rent, you are eligible.
There is a catch, though. Unlike some past tax credit programs, this one requires beneficiaries to repay the credit over an extended period of years. Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro rata repayments to the government on their federal filings. Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year. If you sell the house before the end of the repayment period, and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds. If you have a net gain, the "recapture" cannot exceed the amount of your gain. In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.
At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay the principal back incrementally over time, but there's no interest charged on it.
How do you claim the credit? If you pass the eligibility tests and buy before June 30, you simply request the credit on your tax return for either 2008 or 2009. Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return. The homebuilders association is launching an educational website, www.federalhousingtaxcredit.com, with additional information for consumers.