First Time Home Buyer Tax Credit Clarification 8/8/08 (HR3221: Housing and Economic Recovery Act of 2008)
A tax credit is much more valuable than a deduction! A credit reduces dollar for dollar the amount of tax you owe. A deduction merely reduces the amount of your income that is taxable. Under the new law, certain homeowners will be eligible for a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. The credit is $3,750 for married couples filing separately. Unmarried people who jointly purchase a home will be able to divide the $7,500 credit.
This tax credit is actually a loan, administered through the tax code (basically, a LOAN, cloaked as a tax credit!). Very important that our first time homebuyer's understand the mechanics of how this loan will be repaid. The loan does have the best rate and term you can get. It's interest-free! Buyers who take advantage of the TAX CREDIT, would be required to repay the government over 15 years in equal installments for any amount received. So let's say the first time homebuyer qualifies for the maximum $7,500. The terms would mean a yearly loan payment of $500 for 15 years, or about $41.67 a month.
WHEN DOES THE REPAYMENT BEGIN?: Repaying the credit starts in the second tax year after the home is purchased. If the home is sold before the credit is paid back, the entire amount becomes immediately due. However, if the home is sold and the gain is less than the credit, then the amount that must be repaid is up to the amount of gain. If the homeowner dies, any outstanding amount is forgiven. The credit applies only to homes purchased on or after April 9, 2008, and before July 1, 2009.
WHO QUALIFIES FOR THE CREDIT? High-income buyers won't qualify for the credit. LESS can be claimed, the more you earn. The phase-out starts for single filers with adjusted income of more than $75,000 and $150,000 for joint filers. It completely phases out at $95,000 for singles; $170,000 for married couples filing jointly.
Additional standard deduction allowed (only applied for the 2008 tax year): The law would provide homeowners who claim the standard deduction with an additional standard deduction for state and local real property taxes. The maximum that may be claimed under this provision is $500 ($1,000 for joint filers).