$7,500 First-Time Homebuyer Income Tax Credit

Due to the recently enacted legislation, H.R. 3221, I am sure we have all been fielding questions on what this means and how it will affect our clients. I wanted to use this post as an opportunity to review some of the highlights and ramifications of the $7,500 first-time home buyer tax credit. What does it mean to recent and future homebuyers? How can any real estate agent use this information to increase their business? By knowing the facts about this piece of legislation recent homebuyers will know what to expect on their 2009 taxes and Realtors will be able to steer their past and future clients in the right direction.

Highlights

• Any first-time homebuyers who purchase(d) a home, as their primary residence, between 4/9/2008 and 7/1/2009 will qualify for this tax credit.
• The maximum credit is $7,500 or 10% of the purchase price if lower than a $75,000 sales price.
• If you purchase a home in 2009, you can amend your 2008 tax returns and claim a tax credit.
• This tax credit is really an interest free loan from the government and will be paid back over a 15 year period. The $7,500 tax credit will be repaid at $500 per year; however the homebuyer will skip the first years payment (more on this in a bit).
• A first-time homebuyer is considered as a person not having an ownership interest in a property in the past three years. This time period starts from the settlement date of the previous property to the settlement date of the new property; the date of the sales contract is irrelevant.

There seems to be quite a bit of confusion regarding how the tax credit will be paid back. Simply put, the homebuyer will need to pay back the $7,500 with a $500 annual payment over 15 years. If you sell your home before the tax credit is repaid, any profits will first go to paying off the remaining balance of the credit. If you sell the home at a loss, any unpaid amount of the tax credit will be forgiven. However, any loan forgiven agreement will require you to record the loss as income on your taxes. If the homebuyer decides to move out of the home and keep it for a rental, the tax credit is required to be paid back at the time the house is no longer occupied as a primary residence.

Realtors, use this as an opportunity to follow up with any past clients who purchased after April 9th this year. Make sure they understand how this legislation affects them and what they can expect for their upcoming taxes. Also, with down payment assistance going away in the near future this could be an opportunity to present this tax credit as a way to secure a temporary loan from their immediate family for down payment purposes! By receiving a tax credit from the government the homebuyer can use up to $7,500 to pay back their immediate family the following year.

For further information regarding this tax credit please visit the following link; Government Affairs Update. Make sure you consult a tax advisor to ensure this tax incentive works in your favor!