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Tax Credit.
First-Time Homebuyer
Federal Tax Credit
As part of the “Housing and Economic Recovery
Act of 2008” that was recently signed into law, Congress has created a new,
temporary federal income tax credit to provide an incentive for first-time
homebuyers.
The highlights of this federal tax credit are
as follows:
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The amount of the
federal tax credit is for 10% of the cost of the home, up to a maximum
credit of
$7,500.
In essence, this is an interest-free loan that enables consumers to
receive a tax credit on a dollar-for-dollar basis on their personal income
tax return in the calendar year following the year of closing on their
home. They begin paying the tax credit back the year after that and make
equal installments during the next 15 years. If the homeowner sells the
home at any point during the 15-year payback period, then the remaining
amount is recaptured, unless they sell the home at a loss, at which point
the balance is forgiven.
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e.g., If a home
costs $65,000, the allowable credit would be $6,500. If a home costs
$120,000, then the allowable credit would be $7,500.
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Eligibility is for
first-time homebuyers only. In this case, a first-time homebuyer is
defined as an individual who has not owned a primary home at any time
during the past three years, but who may have done so previously.
Although certain income limits do apply, the amount of the credit is the
same for all taxpayers, married or single. |
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Individuals whose Form
1040 filing status is single (or head of household) are eligible for the
tax credit if their income is no more than $75,000. Individuals who file a
joint return may have no more than $150,000 in income. |
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Individuals with
incomes between $75,001 and 94,999 (single) or $150,001 and $169,999
(joint returns) are eligible for a partial tax credit. |
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Individuals with
incomes greater than $95,000 (single) or $170,000 (joint return) are not
eligible for this tax credit. |
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The federal income
credit can be claimed on one’s individual or joint tax return for the
purchase of any single-family home from April 9, 2008 through July 1,
2009. Individuals should consult a professional tax advisor for exact tax
calculations.
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e.g., If an
individual’s actual tax liability was $5,000, then after the tax credit
is applied the purchaser would receive a total refund of $2,500. The
refundable amount is the difference between the $7,500 tax credit and
the amount of one’s tax liability.
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e.g., If an
individual’s actual tax refund was $2,000, then after the tax credit is
applied the purchaser would receive a total refund of $9,500.
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This tax credit is
required to be repaid without interest in equal installments of 6.67% of
the total credit each year for 15 years beginning the year after the tax
credit is claimed.
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e.g., If a
homebuyer claims the $7,500 credit in 2009 on their federal income tax
return for a closing that occurred in 2008, then the credit is received
in 2009, so repayment begins in 2010 with an annual repayment amount of
approximately $500 a year.
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In addition, the National Association of
Realtors® has prepared a
quick reference chart and
Frequently Asked Questions document for
your reference.
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