Credit Now Available to First-Time Home Buyers
Los Angeles, Sep. 06, 2008
When Congress passed the housing rescue bill (The Housing Assistance
Act of 2008) in July, the article was published about some of the
tax traps contained in the bill, waiting in hiding for the unwary.
The article reported on information contained in an article in
MarketWatch written by Eva Rosenberg, a tax authority and author
of "The 100% Home-Based Business Tax Solution." Rosenberg
urged special caution vis-?-vis the new $7,500 tax credit for first-time
In brief Rosenberg warned that the tax credit is not a gift or
a grant but essentially a 15 year loan to the homebuyer and, while
it is interest free, will require filing a tax return and will carry
the same IRS penalties for non-payment as accrue to delinquent taxes.
Warnings duly noted, further information and the regulations regarding
this tax credit are now available. If you have an interest in the
program, here are some basic facts.
The credit is available only to first-time home buyers defined
as buyers who have not owned a principal residence for three-years
prior to the subject purchase. The ownership test applies to both
partners in a marriage; i.e. if a husband has not owned a home in
the past three years but the wife has, neither spouse qualifies
for the first-time home buyer tax credit. (It appears that this
would be the case even if the husband is purchasing the property
only in his own name.) A buyer can still be eligible for the credit
even if he owns a vacation home or rental property not used as a
Single taxpayers with "modified adjusted gross income"
up to $75,000 and married couples with incomes up to $150,000 qualify
for the full tax credit. Individuals and couples with incomes above
the thresholds may still qualify for a lesser credit, however, taxpayers
with adjusted gross income above $95,000/ $170,000 phase out of
the program completely.
There is no need to fill out an application to qualify for the
tax credit. First-time homebuyers merely claim the credit when filing
the tax return for that year. No pre-approval is necessary, but
if you are relying on this program to purchase a home you may want
to check your eligibility. Your tax advisor may be able to help
you with this.
The credit is available even to those with little or no federal
income tax liability to offset. This usually means that the government
will send a check for part or all of the credit. Otherwise the credit
is used to offset any unpaid taxes or increase a refund.
The credit is available for homes purchased between April 9, 2008
and July 1, 2009 and applies to both new and existing homes whether
attached or detached, condominiums, mobile homes, or houseboats.
A homebuyer contracting for a custom built home can qualify for
the credit as long as the home is first occupied between the April
2008/June 2009 dates. (For newly-constructed homes bought from a
home builder, eligibility for the tax credit is determined by the
The $7,500 credit represents 10 percent of the purchase price of
a low cost home. Most who use the program will be able to claim
this full amount, however, in the event a home is purchased for
a lesser amount, the 10 percent cap will apply. That would mean
that a $65,000 purchase would result in a $6,500 credit.
There are other refinements to the program. For example, if it
is to his benefit, a taxpayer can apply for the credit in a different
year than the home is purchased. There is also a possible forgiveness
of debt for homeowners who sell the home before the loan is repaid
and do not received sufficient gain from the sale to cover the loan
balance. Information on these and other details of the program can
be researched on a website maintained by the National Association
of Homebuilders at www.federalhousingtaxcredit.com.