First-Time Homebuyer: Take Advantage of the First-Time Homebuyers Tax CreditAs part of the "Housing and Economic Recovery Act of 2009 that was recently signedinto law, Congress has created a new, temporary federal income tax credit toprovide an incentive for first-time homebuyers. The highlights of this federal taxcredit are as follows:The amount of the federal tax credit is for 10% of the cost of the home, up to amaximum credit of $ 8,000 . In essence, this is an interest-free loan that enablesconsumers to receive a tax credit on a dollar-for-dollar basis on their personalincome tax return in the calendar year following the year of closing on theirhome. They begin paying the tax credit back the year after that and make equalinstallments during the next 15 years. If the homeowner sells the home at anypoint 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.e.g., If a home costs $65,000, the allowable credit would be $ 6,500. If a homecosts $120,000, then the allowable credit would be $8,00.Eligibility is for first-time homebuyers only. In this case, a first-timehomebuyer is defined as an individual who has not owned a primary home at any timeduring the past three years, but who may have done so previously. Although certainincome limits do apply, the amount of the credit is the same for all taxpayers,married or single.Individuals, whose Form 1040 filing status is single (or head of household), areeligible for the tax credit if their income is no more than $75,000. Individualswho file a joint return may have no more than $150,000 in income.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.Individuals with incomes greater than $95,000 (single) or $170,000 (joint return)are not eligible for this tax credit.The federal income credit can be claimed on one's individual or joint tax returnfor the purchase of any single-family home between April 9, 2008 through July 1,2009. Individuals should consult a professional tax advisor for exact taxcalculations.e.g., If an individual's actual tax liability was $5,000, then after the taxcredit is applied the purchaser would receive a total refund of $2,500. Therefundable amount is the difference between the $7,500 tax credit and the amountof one's tax liability.e.g., If an individual's actual tax refund was $2,000, then after the tax creditis applied the purchaser would receive a total refund of $9,500.This tax credit is required to be repaid without interest in equal installments of6.67% of the total credit each year for 15 years beginning the year after the taxcredit is claimed.e.g., If a homebuyer claims the $7,500 credit in 2009 on their federal income taxreturn 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 $500a year.Of the many provisions of this new housing bill, the First-Time Homebuyer TaxCredit appears to provide the most promising opportunity to impact home sales forthe remainder of 2008. For more information about buying a home, do not hesitate to contact me forassistance.
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