The U.S. Senate passed, on Saturday, a bill that is designed to help the sagging housing industry, and the President is expected to sign the bill. Part of the bill includes a program to help homeowners with mortgages they can’t repay, refinance to avoid foreclosure. However, part of the bill includes a federal tax credit for first time home buyers.
If you are buying a home for the first time and it will be your primary residence, you will be eligible for a tax credit of $7,500 or 10% of the purchase price, whichever is smaller. A tax credit is applied toward the amount you would otherwise pay to the IRS. So, if you owe the IRS $2,000. and you qualify for the credit, you would get a refund of $5,500.
To qualify for the full credit, you must not have an adjusted gross income over $75,000 (single) or $150,000 (married filing jointly). At those levels, the credit begins to phase out. The credit completely diminishes at $95,000. for singles and $170,000. for married filing jointly.
Additionally, you have to pay back the credit over the next 15 years - so it’s more of an interest free loan than a “pure” tax credit.
The tax credit is retroactive to April 9, 2008 and extends through July 1, 2009, and if you purchase your home between January 1, 2009 and June 30, 2009, you can still claim it on your 2008 return.
So if you’ve been thinking about taking advantage of this buyer’s market with its low interest rates, huge selection of homes to choose from, and sellers who are willing to be creative to get their homes sold, now you have one more reason to purchase a home.
P.S. TO THIS ENTRY (August 15, 2008)
Just a quick, but important, post script to this blog entry. A loan officer from a local bank spoke at my office meeting yesterday and provided more information on this “interest-free loan”. If you get your mortgage through Idaho Housing and Finance Association, you won’t qualify for the $7,500. “tax credit”. At this point, not quite sure why but it probably has something to do with the great interest rates that they offer.
2 responses so far ↓
Ken Smith || Oct 1, 2008 at 10:41 am
From my understanding it didn’t matter what loan program you used to get the credit. Did you ever find out why this one bank wouldn’t qualify?
Karen Geselle || Oct 1, 2008 at 11:39 am
Hi, Ken. I called a lender that I work with and she spoke to Idaho Housing and Finance Association. Idaho Housing is not a bank, they are a non-profit corporation that provides housing options including loans to first time home buyers. The loans that they provide to lenders to provide to first time home buyers are financed by bonds with “tax exempt interest rates” sold by Idaho Housing. Therefore, the interest rate the buyer gets is “subsidized” by the money from Idaho Housing. Thus, borrowers who use this particular loan money do not qualify for the interest free “tax credit” provided in the legislation.
But with interest rates hovering between 5.75% and 6%, buyers can currently get a better interest rate than the Idaho Housing money and get the “tax credit” too.
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