The United States Federal Government has just passed landmark legislation that ensures a TAX CREDIT of $7,500 (seven thousand five hundred dollars) for FIRST-TIME HOME BUYERS that purchase a home on or before July 1, 2009. This tax credit will be paid to eligible first time home buyers (those that have not purchased a home in the past three years) even if they do not owe any tax. That’s right! If you don’t owe income tax the U.S. Government will write you a check for $7,500! This legislation is a once in a life time opportunity to cash-in on the government’s efforts to bolster the housing market. Further – you can combine your tax credit with the zero-down programs that are still available (however zero-down home buying programs are soon to be phased out).

To learn more about the new FIRST-TIME HOMEBUYER CREDIT law, call or text Kenn at 512-423-5626.

First Time Home Buyer Tax Credit

From the Housing and Economic Recovery Act of 2008

Who is
eligible?

Basic requirements:

  • Purchaser and spouse who have not owned a home within the last three years
  • Must purchase from unrelated party
  • Income limits:
  • Those making no more than $75,000 (individual return) or $150,000 (joint return) may receive the full amount
  • If more than $95,000 (indiv) or $170,000 (joint), buyers are ineligible
  • Those between these two points can receive a partial payment

What type of property can be purchased?
  • Any single family residence
  • Must be used as a principal residence
  • Must close the transaction between April 9, 2008 and July 1, 2009

How much is the credit?
  • 10% of the cost of the home
  • Maximum amount is $7,500
  • Interest-free loan repayable over 15 years

How is the payment received?
  • Claimed as a part of the buyer’s 2008 or 2009 tax return
  • Refundable:
  • Not a reduction of your taxable income
  • Reduces your tax liability
    (See FAQ on the back for examples)

What are the repayment terms?

Repayment Amounts:

  • Pay back 1/15 (6.67%) every year
  • For $7,500, about $502.50/year

Repayment starts 2 years after credit is claimed:

  • 2008 tax returns — 2010; 2009 tax returns — 2011
  • If house is sold, repayment comes out of sale

Repayment Exceptions:

  • Sale results in less gain than amount still owing
  • Person who used credit dies

Information courtesy of:

Kenton K. Brown

Sente Mortgage

901 S. Mopac, Building IV,
Suite 125, Austin, TX 78746

512.637.9900

Kenton.Brown@SenteMortgage.com

Kenn Renner

www.buyaustin.com
1921 Lohmans Crossing
Lakeway, TX 78734
512.423.5626 Call/text

Kenn@buyaustin.com

First Time Home Buyer Tax Credit

Frequently Asked Questions

1. How is the partial tax credit determined?

First, subtract either $75,000 (for an individual) or $150,000 (for joint filers) from the income of the borrower(s). Then divide the remaining amount by $20,000—the result should be a fraction. Subtract that fraction from 1. Then multiply the result times $7,500, and the result is the partial credit.

For example: a couple who files jointly makes $160,000. The calculation would be:
$160,000 - $150,000 = $10,000
$ 10,000 / $20,000 = .5
1 - .5 = .5
.5 * $7,500 = $3,750
They would be eligible for a $3,750 credit.

2. If I file separately from the person I’m purchasing the home with, can we both claim the credit?

No. The total claim is for $7,500.

3. Does the credit amount differ if you file jointly or separately.

No. The credit is $7,500 for a qualified home purchase, whether the home buyer files taxes as a single or married taxpayer. However, if a household files their taxes as "married filing separately" (in effect, filing two returns), then the credit of $7,500 is claimed as a $3,750 credit on each of the two returns.

4. How does a buyer apply for the credit?

There is no authorization or approval required. Eligible purchasers will claim the credit on their IRS tax return or through a special form filed with their tax return. The IRS has not defined the mechanics yet.

5. What is the difference between a tax credit and a tax deduction?

A tax deduction is subtracted from the amount of income that is taxed.
A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $7,500 in income taxes and who receives a $7,500 tax credit would owe nothing to the IRS.

6. Can I use the credit as part of my down payment?

There currently isn’t a mechanism for this.

7. What does refundable mean?

That means the credit can be claimed even if there is little or no tax liability. Here are some examples of how this would work:

  • If you owed $8,000 in taxes, after the $7,500 credit you would owe only $500.
  • If you owed $3,000 in taxes, after the $7,500 credit you would receive a refund of $4,500.
  • If you showed a refund a $1,000, after the $7,500 credit you would receive a refund of $8,500.

8. How will I make the payments for repaying the credit?

The earliest that the repayments will begin is 2010, and the IRS will make the repayment provisions clear at that time.

9. If I am planning on making a purchase in early 2009, can I claim the credit on my 2008 tax return?

If you purchase a home before July 1, 2009, you can elect to treat the purchase as if it occurred in 2008 for the purpose of receiving the credit. The purchase must occur before the 2008 taxes are filed. If the purchase does not occur before the tax due date of April 15, 2009, you can file for an extension and claim the credit on the extended tax return.