The Housing and Tax Assistance Act of 2008 authorized a tax credit for “first-time homebuyers.” This tax break may apply to you or other family members, however the homebuyer’s credit isn’t all that it’s cracked up to be.
Background: A qualified first-time homebuyer may claim a refundable tax credit equal to the lesser of $7,500 ($3,750 for a married person who files separately) or 10% of the home’s purchase price. The credit is available for principal residences purchased after April 8, 2008, and before July 1, 2009.
The IRS defines a “first-time homebuyer” as an individual who has not owned a principal residence for the three years before the purchase. So certain older individuals may also qualify.
However, there are three significant drawbacks to the new credit.
1. The first-time homebuyer’s credit phases out if AGI for the year of the purchase exceeds $75,000 for single filers; $150,000 for joint filers. The phase-out is complete at $95,000 of AGI for single filers; $170,000 for joint filers.
2. Unlike any other credit on the federal tax return, the credit amount must be repaid in equal installments on tax returns over 15 years. Payments must begin in the second tax year after the home is purchased. For example, if you buy a home in 2008, you must start repaying the credit on your 2010 return.
3. If you sell the home or stop using it as a principal residence before the credit is completely repaid, the remaining amount must be repaid in full in the year of sale or the year the home stops being your principal residence. But the amount of the repayment can’t exceed the gain from a sale to an unrelated person.
Other special rules may come into play. For assistance concerning your personal situation—or for a family member’s situation—-call us and we would be glad to discuss the particulars with you.
