Get You Some Tax Credit!

Even before the historic 2008 election, the bailouts of AIG, the Banking Industry and the Auto Makers, there was a program in place to help stimulate home purchases.  

In fact, I wrote about it in August 2008.  But, with the start of a New Year, I thought it wise to re-visit the program.  The program is a tax credit for those buying homes.  There are a few “catches”, so here some details.

Highlights

• 1st time homebuyers who purchase a principal residence between 4/9/08 and 7/1/09 qualify.  Retroactive for those who have already closed.
• Maximum credit is $7,500 OR 10% of purchase price if price is under $75,000.
• For homes purchased in 2009, you can elect to amend 2008 tax return and claim the credit.
• Tax credit is “recaptured” by the IRS over 15 years.  You can skip the first year before starting to make payments. It’s an ”interest free loan”, payable evenly over the 15 years. For example a $7,500 credit is paid back at $500/year.
• You can use the credit to offset 2008 taxes due, and any remainder can be paid to you in cash.
• Check with your accountant, financial or tax consultant to make sure this incentive works in your favor.

Some Restrictions Apply

Here are some reasons a credit would not be in your future.

• Non-resident aliens are not eligible.
• Buyers that financed with tax-exempt mortgage bond programs.
• If the property is sold or disposed of before the end of the tax year.
• If property ceases to be your principal residence.
• If property is acquired from a person related to the homebuyer.
• If Adjusted Gross Income (AGI) exceeds $95,000 (individual) or $170,000 (joint).  Credit phases out for individuals with AGI of $75,000-$95,000 and joint filers with AGI $150,000-$170,000 (consult accountant!).

More Stuff

• 1st-time homebuyer is defined as anyone who did NOT have an ownership interest in a primary residence within the last 3 years. Calculated from settlement date to settlement date.
• Loan type – not loan specific, applies to FHA, VA, FNMA, FMAC, non-conforming – ALL loans.
• Credit – it’s NOT a tax deduction.  It doesn’t matter if you owe taxes or not.  The credit is given to you at the bottom line.  Thus, if you would normally have received a tax refund, it just became $7500 bigger!  However, a tax return must be filed to claim the cash.
• Purchase from related party-talk to an accountant, “related person” is mixed up in the tax codes – see a professional advisor.
• House becomes non-owner occupied – if you move out, rent it, or sell it, the remainder of the credit not paid back is “called” and due (like the due-on-sale clause in most notes and mortgages). If you buy another primary residence within 2 years, you go back to the 15 year payback schedule. Again, see an accountant or professional.
• Recapture – if you have to sell, and lose money on the home, you don’t have to pay back any of the “loan”. Or, the maximum total recapture to the IRS, including what you may have already paid back is limited to your actual gain if/when you sell (accountant time again!).
• Municipal Bond Loans – loans from bond programs such as the State Housing Program disqualifies the borrower from the credit – talk to your lender.