San Diego real estate blog - Peter Toner

Just last week the Housing and Economic Recovery Act of 2008 was signed into law. Part of this new law is a temporary tax credit for first-time home buyers. The credit will apply to home purchases settled on or after April 9^th, 2008 through July 1st, 2009, with the later date being the expiration of the credit offer.

A first-time home buyer is considered one who has not purchased a home in the past 3 years. If the home buyer is married and both plan to purchase the home and apply for the credit, the spouse must also not have purchased a home in the past 3 years. The credit is not something you have to apply for, but instead you claim on your IRS taxes. Talk to your tax advisor regarding the appropriate forms to use.

Remember this is a tax credit so eventually the amount of the credit will be owed back to the IRS. If during the year that you claim the credit you already owe money to the IRS, they will credit you the amount minus what you owe them. For example, if you owe the IRS $4,000 when you are filing your taxes, you will only receive a $3,500 credit (if you qualify for the max credit amount). The credit is interest free, so if you plan to purchase a home this year and qualify for the credit, why not take advantage of it!

Below are a few more details on the eligibility and usage of the credit.

Amount of CreditTen percent of cost of home, not to exceed

$7,500

Eligible Property

Any single-family residence (including condos, co-ops) that will be used as a principal residence.

Refundable

Yes. Reduces income tax liability for the year of purchase. Claimed on tax return for that tax year.

Income Limit

Yes. Full amount of credit available for individuals with adjusted gross income of no more than $75,000 ($150,000 on a joint return). Phases out above those caps ($95,000 and $170,000, respectively).

First-time Homebuyer Only

Yes. Purchaser (and purchaser’s spouse) may not have owned a principal residence in 3 years previous to purchase.

Recapture

Yes. Portion (6.67 % of credit) to be repaid each year for 15 years. If home sold before 15 years, then remainder of credit recaptured on sale.

Impact on District of Columbia Home Buyer Credit

DC credit not available if purchaser uses this credit.

Effective Date

Purchases on or after April 9, 2008

Termination

July 1, 2009

Interaction with Alternative Minimum Tax

Can be used against AMT, so credit will not throw individual into AMT.

*** Information deemed accurate as of July 30^th, 2008. ***

Please check with your tax advisor to confirm details and restrictions if you decide to apply for the tax credit.