Tax
credit to aid first-time
homebuyers; must be repaid over fifteen years
First-time homebuyers should begin planning now to take advantage
of a new tax credit included in the recently enacted Housing and
Economic Recovery Act of 2008. Available for a limited time only,
the credit applies to home purchases after April 8, 2008 and before
July 1, 2009; it reduces a taxpayer’s tax bill or increases
his or her refund, dollar for dollar; and it is fully refundable,
meaning that the credit will be paid out to eligible taxpayers,
even if they owe no tax or the credit is more than the tax that
they owe.
However, the credit operates much like an interest-free loan, because
it must be repaid over a fifteen-year period. For example, an eligible
taxpayer who buys a home today and properly claims the maximum available
credit of $7,500 on his or her 2008 federal income tax return must
begin repaying the credit by including one-fifteenth of this amount,
or $500, as an additional tax on his or her 2010 return. Eligible
taxpayers will claim the credit on new IRS Form 5405. The form,
along with further instructions, will be included in 2008 tax forms
and instructions, and will be available later this year on www.IRS.gov.
Only the purchase of a main home located in the United States qualifies
and only for a limited time. Vacation homes and rental property
are not eligible. For a home that you construct, the purchase date
is the first date you occupy the home. First-time homebuyers and
those who have not owned a home in the three years prior to a purchase
can qualify for the credit.
The credit is ten percent of the purchase price of the home, with
a maximum available credit of $7,500 for either a single taxpayer
or a married couple filing jointly and $3,750 for a married person
filing a separate return. The credit is reduced or eliminated for
higher-income taxpayers and is phased out based on the modified
adjusted gross income (MAGI). The full credit is available for married
couples filing a joint return whose MAGI is $150,000 or less and
for other taxpayers whose MAGI is $75,000 or less.
If any of the following describe your situation, you cannot take
the credit, even if you buy a main home: Your income exceeds the
phase-out range; you buy your home from a close relative; you stop
using the home as your main home; you sell the home before the end
of the year; you are a nonresident alien; you are, or were, eligible
to claim the District of Columbia first-time homebuyer credit for
any taxable year; your home financing comes from tax-exempt mortgage
revenue bonds; you owned another main home at any time during the
three years prior to the date of purchase.
The credit is repaid similar to a fifteen-year interest-free loan
in fifteen equal annual installments, beginning with the second
tax year after the year the credit is claimed. It is included as
an additional tax on the taxpayer’s income tax return for
that year. If you claim the first-time homebuyer credit on your
2008 return, you will begin paying it back on your 2010 tax return.
There are exceptions to the repayment rule. For full information
on this new tax credit, consult your tax preparer.
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