$7,500 Tax Credit for First-Time Home Buyers
I’ve been hearing a lot about this new $7,500 tax credit for first-time home buyers, which is part of the newly passed 2008 American Housing Rescue and Foreclosure Act. Is it as great as it sounds?
A new website has been put up with more information about this tax credit. Curiously, the fact that this “credit” has to be paid back over the next 15 years (or when you sell) is conveniently left out of the “At A Glance” section, and you have to scroll down to question #15 in their Frequently Asked Questions to learn about the repayment terms. Did I mention the site was created by the National Association of Home Builders? No way would they want to mislead potential home buyers, right?
To qualify, you must close on your new house between April 9, 2008 and July 1, 2009. A good summary of this tax credit interest-free loan is in this Fortune article:
The “first-time home buyer credit” is a temporary refundable, repayable tax credit equal to 10% of the purchase price of a home, up to $7,500 for singles and married couples filing jointly. (Singles who buy a house together get only $3,750 each, as do married couples filing their tax returns separately.) […]
But the way the credit works, it’s actually more like an interest-free loan. Two years after you claim this credit, you have to start paying it back. The payback comes over 15 years in 15 equal installments–meaning you owe an extra $500 on your tax return each year. Sell your house, and you have to pay the rest back that year from your profits. (No profits, no pay back. Also, if you die, your heirs are off the hook.)
The allowed credit starts being reduced once a single has $75,000 of modified adjusted gross income, or once a couple has $150,000 of income. The credit goes away entirely at $95,000 for singles and $170,000 for couples.
The justification behind a $7,500 interest-free loan is that it is supposed to ease the “pain” of having to come up with closing costs and a downpayment. But wait… Wasn’t the housing bubble caused in part by people being tempted into buying houses they couldn’t really afford because they didn’t need to first save up for closing costs or a downpayment? I find it ironic that our choice of “buyer assistance” is even more easy lending.
Now, of course I would still grab this tax “credit” if I was going to buy a house anyway. I’d happily take a 0% interest loan on $7,500 for any period. But why not just give us something simple and straightforward, like a check for $1,000? My guess is that the phrase “$7,500 tax credit” works better to pacify angry citizens.
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August 7th, 2008 at 6:23 am
This makes me mad, only because I am a new home buyer, but I purchased my home at the end of January. What a stupid time frame, April 9-July 1, 09. At least make it retroactive to the beginning of 2008.
August 7th, 2008 at 6:47 am
Sooooo….if I only make a gain of let’s say $5k in 5 to 6 years on the home…do I only have to pay back $5k of the $7500 interest-free loan?
August 7th, 2008 at 7:23 am
Thanks for posting that on your website! My fiance and I were under the impression that it was a $7500 tax credit, and because of that we were motivated to buy something sooner than later. How the gov has termed it as “tax credit” is very misleading.
August 7th, 2008 at 7:27 am
It sounds like the government is going into the real estate business and they are use marketing tactics of someone in business. I don’t like it!
August 7th, 2008 at 7:28 am
Is the government going into the real estate business? It looks like it!
August 7th, 2008 at 7:34 am
I closed on my house on Feb. 13, man I want a $7500 no interest loan. I’d love to pay off parts of my car loan with it.
August 7th, 2008 at 7:47 am
The Housing Bailout (should be renamed to Lender bailout) bill that was just shoved down the taxpayers’ throats is an abomination.
The bill only did one good thing: It eliminated DPA (down payment assistance) from the FHA. Of course, the NAR and AHB are already on the case to “fix” that. But the concept that a seller can pay or provide assistance to a buyer is dangerous. Dangerous in the sense that if you cannot afford a down payment, you probably can’t afford the house.
The housing downturn will be donw when we get back to normal lending practices:
36% debt to income
20% downpayment
30 year fixed
What CONgress does not realize is that never in history has there even been an asset that is more affordable that is increasing in value. To make housing affordable, you make it cheaper. Also, owning a home is a privledge you earn through work. Homeownership is not a right.
August 7th, 2008 at 7:53 am
Wow great read. I didn’t know the details of this “tax credit” until now. The government sure has gotten better at their marketting ability.
August 7th, 2008 at 8:03 am
The price is not a hundred bucks, it’s only $99.99!
August 7th, 2008 at 8:29 am
Last weekend’s Marketplace made it sound like recent homebuyers could apply for this too.
August 7th, 2008 at 8:41 am
This is ridiculous. I can see problems arising from this when people can’t pay that money back at the end of the fifteen years. It is good to have temporary money to use, however.
August 7th, 2008 at 9:09 am
interesting, thanks for doing the research for us!
August 7th, 2008 at 9:58 am
It’s a great point that the government is helping people afford houses that they otherwise would have trouble affording. It’s a great thing to have a 0% interest loan to supplement a responsible saver’s mortgage and downpayment, but for people similar to those responsible for the subprime mortgage it’s just not learning from past mistakes.
I’m currently reading A Random Walk Down Wall Street by Burton Malkiel (upon your suggestion) and just finished up the behavioral finance chapter. Calling it a tax credit rather than an interest-free loan is definitely explained by behavioral finance and risk aversion.
August 7th, 2008 at 10:05 am
Given the cost of houses, $7,500 is nothing.
August 7th, 2008 at 10:09 am
It’s not really “nothing” since it will be used for a downpayment. If you only put 10% down then a free $7,500 lets you buy $75,000 more house, which is nontrivial. Why in Detroit you can even almost buy an entire house for $7,500!
August 7th, 2008 at 10:20 am
Thanks Jonathan for posting information on this! I’ve been looking all over for a clear explanation of what is going to happen with this, so it’s nice to have someone spell out exactly what it is.
On a side note, keep up the great work! You are reliably one of the best bloggers in my reading, I find your coverage of different topics excellent. So thanks!!
August 7th, 2008 at 10:45 am
A little confused here, how does this really help a home buyer. Hear me out on this one….
If I am going to buy a house tomorrow (thank Jebus I am not considering what hell buying my first place was) having knowledge that sometime next april $7,500 is credited back to me wouldn’t do anything for the mortgage.
Example: If I qualified for a $500K home (which is the run of the mill where I live (North Shore Long Island), the fact that in 9 months I am getting a $7,500 credit would NOT allow me to get a $575K home BECAUSE I WOULDN”T QUALIFY. When I saw qualify I mean with a down payment (even if less than 5 - 10%).
As usual, I think the gov’t missed the point here - this is a private lending issue. Do I have a better solution? Nope, but I don’t think this one does anything except try to get people into homes that they may or may not be able to actually afford.
August 7th, 2008 at 10:48 am
Thanks Jonathan, I’ve read up all over the web on this “credit” as I closed on the 9th of July. No matter how much I read about it though I still want to confirm info with additional sources. I hadn’t read the Forbes article so thank you for highlighting it.
It’s too bad the credit has to be repaid but seriously, a 0% loan is not bad… it’s just not as good as it could have been. I’m right there with you.
August 7th, 2008 at 12:09 pm
I’m a first-time home buyer, buying right now!
Looks like I don’t qualify since I make over $75k/year (single)? If that is the case, that seems so stupid. Congress has recognized the variation in home prices in high cost areas such as San Francisco (going as far as to making FHA back loans of up to $750k permanent in THIS VERY BILL), yet they don’t recognize that SALARIES are commensurrate with various areas of the country? hmmmm…..
I’m I missing something? Am I wrong? Did I read this wrong?
August 7th, 2008 at 12:19 pm
Nice find. I read a few articles online and little was mentioned about the tax credit. I wish I could take advantage of it somehow. An interest free loan would be nice
August 7th, 2008 at 1:00 pm
I wouldn’t qualify anyway, I’m not a first time home buyer. I sold my home last August and purchased one from builder inventory in January with my new bride.
Even though she has never owned a home, since we are married, both of us must not have owned a home in the three years prior to purchasing for this tax-credit/interest free loan.
August 7th, 2008 at 1:09 pm
As usual, the government’s brilliant financial “incentives” for first time home buyers doesn’t do much for people living in the nation’s highest housing cost areas (e.g. San Francisco bay area, California).
Just affording a mortgage on a house in Silicon Valley pretty much means making at least 6 figures AGI to qualify for a (typically non-conforming) loan, thus thereby not qualifying for any amount of this potential “tax credit”…
August 7th, 2008 at 1:13 pm
THIS WILL HELP ME A GREAT DEAL! I will close on MY FIRST home soon. The various fees and downpayment will almost deplete my savings. Just knowing that I have 7,500.00 coming in January will keep me comfortable until my next payraise in March of 2009. A lump sum is just what I need to tide me over. THIS IS AN UNEXPECTED BLESSING TO ME AND I’M SURE TO OTHERS ALSO.
August 7th, 2008 at 3:13 pm
It’s better than 0% loan for 15 years. For example, you can adjust your tax withholding in 2008 so no federal tax is taken from your paycheck. Then all you have to do is buy a home right before filling a tax return in April 2009, and apply all that tax credit, without having to pay a dime in taxes for tax year 2008 or even getting a refund if total taxes owed are lower than $7,500. Basically, by doing that, you’re getting the money from that credit in advance. That’s a lot of savings.
August 7th, 2008 at 5:09 pm
My husband and I are buying our first home in under a month so he can be 5 minutes away from work as opposed to 45 minutes. I’d rather personally have the $7500 upfront to pay off some bills, but it doesn’t sound like that is how this works. I did, however, find this…
“How to use the $7500 tax credit now!
The key is to change your withholding. While I recommend that your check with your tax adviser, you may be able to experiment yourself in this way. Obtain a form W-4 from your payroll service. Increase your FEDERAL withholding (increase federal withholding & increase take home pay). How many deductions can you take? The simple answer is to increase withholding by 10 and see what the impact is on your next check. If your objective is to take your credit by year end by reducing your withholding, calculate if you need to increase or decrease your withholding based on the impact of 10 additional withholding exemptions. Good luck.”
Is this really the way to go if I could use the money sooner rather than later? Or is this just an awful idea?
August 7th, 2008 at 5:15 pm
You don’t automatically get $7,500…..his article said that it is 10% of the purchase price. I bought a home in June for $148,900 so I will only get $1,480. For me, I would rather let Uncle Sam keep the money and not have to worry about paying him back for 15 years.
August 7th, 2008 at 5:37 pm
To reply to you Amy
“I bought a home in June for $148,900 so I will only get $1,480.”
10% of $148,900 is $14,890, not $1,489… you figured it out for 1%. So you would get the full $7,500 if your income lets you qualify.
August 7th, 2008 at 6:18 pm
Thanks Donna! I realized later on that my logic was faulty. I’ve been painting this new house I bought and the paint fumes must have taken a few brain cells.
And I graduated Summa Cum Laude…imagine that!??! Ha ha.
August 7th, 2008 at 6:21 pm
Not a problem, we all have our moments, right?
August 7th, 2008 at 8:55 pm
And if you purchase the home in 2009, there’s an option to file an amended 2008 return and get the “credit” early.
August 7th, 2008 at 9:30 pm
Interesting post. What part of the mortgage lending crisis was unclear to the architect of this tax credit ? Part of the pain of coming up with the downpayment to buy a house, is what keeps us out of a mortgage lending crisis. As a former banker, I can’t understand the logic behind this.
August 7th, 2008 at 10:06 pm
And the housing bubble continues…
man, I am not going to own a US home for a very long time. The truth is (and our elected officials should know this), this type of incentive will cause prospective homeowners to “bid up” the price of the house and further leverage their way into debt.
This just depresses me because more people are going to dig themselves a grave and then the government is going to depreciate my dollars by merrily bailing them out.
OK, look I can’t vote b/c I’m a resident and not a citizen. For those of you who can vote, please find somebody who understands why this form of tax incentive is wrong.
August 7th, 2008 at 10:47 pm
The problem with hands-off approach to corrections is that they tend to overblow and overlast, just like the bubbles. The problem with overblowing and overlasting is that while it will correct itself in the long term, to quote a wise man, “in the long term, we are all dead.” Just think of what you do for a living. Don’t you think that while “the scam gets what it deserves”, the same wave will not blow you away? Unlikely. Housing hits the fan? Construction follows. Finance is behind. Heavy machinery is only a few years away. Tech and consulting services get put on hold. All of you in the food/retail business, who will be your customer; will you be a customer of anybody’s then?
Bottom line: it’s unfortunate, but to teach the idiots to not overeat, we will all have to hide the food for a month and not eat for a month with them; we cannot just force them to starve up a bit while we continue to eat in moderation as we’ve done always. Any takers?
And Jonathan…1000 check now is not the same as a 7.5K interest free loan for 15 years. Crossing Bay Area bridges was $1 12 years ago. It’s $4 today. With reasonable passive investment, 7.5K interest becomes 20 large in 15 years. 1K will be 3K in 15 years. Stop the savings account thinking. 7.5K now is to save us from us.
August 8th, 2008 at 5:47 am
Ah, finally some straightforward information about this credit! My fiancé and I are in the process of buying our first home so of course this credit perked our interest. However, discovering the details has left us rather disappointed. Well ya know what they say, it it’s too good to be true it probably is. The last thing I want to do is owe the IRS money and be in more debt! Unless of course, someone convinces me to see this otherwise.
August 8th, 2008 at 6:08 am
Mandy - Well, the interest saved on $7,500 - if you were going to borrow it otherwise - can still be substantial. For example, paying 6% interest for a year on $7,500 is $450.
August 8th, 2008 at 7:44 am
An Interest Free Loan is good. Most salaries increase each year. After two years, paying the amount back will not be too difficult for most people. However, if you think that you’ll have problems paying it back for 15 years, by pass the 7,500 and just take the normal tax credit for purchasing a home.
August 8th, 2008 at 9:44 am
So, I will qualify for this ‘credit’….but what should I do with the money? I have an emergency fund and put down 20%. Should I use it to make home improvements, pay down my mortgage, add to retirement, etc???? What would make the most sense to take advantage of making money off our government?
August 8th, 2008 at 10:43 am
“The last thing I want to do is owe the IRS money and be in more debt!”
Indeed, this credit should be taken only by those who know how to play the arbitrage game, and much more effective if you withhold federal taxes from your paycheck this year to invest the extra money in non-risk and liquid investments (i.e., Munis, CD, open a non-risk Roth-IRA). Many other people might choose to get the credit to buy stuff from China at Wal-Mart, like they did with the stimulus check.
August 8th, 2008 at 10:55 am
This is the most ridiculous thing I’ve ever heard of. Arg! More government incentives to artificially prop up the home values. It’s this exact kind of thing that got us into this mess in the first place. STOP GIVING PEOPLE WHO CANT AFFORD IT A REASON TO BUY HOMES! So, what happens when these people have to increase their withholding in order to pay back the loan and then cant afford their mortgage payment because their checks are short? The government loves to talk about the great benefit that home ownership provides, but what they leave out is the great benefit that home ownership provides the government in the form of property taxes. Don’t get me wrong, I’m not against home ownership, but guess who gets to collect more money when home prices rise? If the government really cared about fixing the housing market, they would repeal the FHA, get rid of tax incentives and instead lower property taxes. This will never happen, your money is just way to important to the government. Isn’t it a bit ironic that we create policies to prop up home values, which makes housing less affordable, so we can spend tax dollars on low income housing? The whole thing makes my head hurt.
August 10th, 2008 at 11:50 am
I don’t really think that this tax credit/interest free loan was a good idea, but since I bought my first house about 2 months ago, I will absolutely take full advantage of it. I had already been planning to buy my first Harley this winter, after I get my big raise to bump me up to “full” GS-12 engineer salary for completing the developmental first 2.5 years of my career. My home is the only thing I have borrowed money for, so I know that my interest rate on the motorcycle loan won’t be very good. I had expected to put 20-25% down on the bike, but with this, I will probably put around 50% down, which will allow me to save quite a bit on interest and I may even pay it off sooner.
Chuck, what is this “normal tax credit for purchasing a home”? I’m apparently not familiar with this tax credit, but I just bought my first home recently, so I guess I need to learn about it.
August 10th, 2008 at 1:28 pm
I think I have figured out a very good use for this interest free loan. I could use it to pay off some of my student loans saving me the interest. There doesn’t seem to be a reason not to do this.
August 11th, 2008 at 8:37 am
I purchased a home 6/25/08 with my boyfriend for 205k. We both make less that $75,000.00. He is a first time home owner and I am not. I sold my home 6/18/06 to my ex husband after a divorce. I hadn’t lived in the home since 7/05. Am I considered a “first time home owner”? When is the 3 year rule start from? Your closing date or 12/31/08? If not can my boyfriend just claim the 3750 because he truly is a first time homeowner? I haven’t found much info on singles that buy a home together. Any info will be appreciated
August 11th, 2008 at 12:10 pm
How do you apply for the tax credit? How does it works, do you qualify automatically when you get the mortgage?
August 11th, 2008 at 1:06 pm
Lorena,
if you make under $75,000 per year single, or $150,000 married then you qualify. The “tax credit” (technically an interest free loan), is applied at tax time, with the appropriate paperwork provided by you lending company. Give that paperwork to whomever does your taxes, and they will know what to do with it.
Hope that helped.
August 11th, 2008 at 3:16 pm
My question is do you actually get the full $7,500 or is it just used like a tax deduction? In other words say im getting $1000 back on my taxes before I decide to accept the tax credit. Then if I decided to accept the tax credit I would be getting $8,500 back or is it just a percentage of the $7,500. For example: say I claim $8,000 on my taxes for child care I only get a small percentage of that back on my refund amount is it the same for the tax credit or is it like getting $7,500 cash.
August 11th, 2008 at 3:26 pm
I just found the answer to my question. Here it is in case anyone else has the same question.
A tax credit is different from a tax deduction. A tax deduction reduces the income one is taxed on. A tax credit, however, is a dollar-for-dollar reduction in what the taxpayer owes. Here are some examples of how a tax credit would work. Let’s say the taxpayer is receiving a tax return of $2,000. With a $7,500 tax credit, the taxpayer would receive $9,500 on his return. Let’s say he owes $2,000 in taxes. With a $7,500 tax credit, he would receive $5,500 on his return. If he owes no taxes or is exempt from paying taxes, he would get $7,500 with this tax credit.
August 11th, 2008 at 6:17 pm
Jonathan, congress probably chose this because it’s, in budgetary terms, it’s a neutral give-away. Congress effectively paid for the tax break by insuring that it has to be repaid… Crazy, stupid budgeting rules…
August 12th, 2008 at 6:15 am
if i didnt own a home, i would use this 0% interest loan to buy an investment property, which i would rent out, and make income on (rent), while allowing my $7K to sit in the bank and earn interest.
living in a college town, this is a completely possible move.
Or, do you have to live in the house as your primary residence?
August 12th, 2008 at 8:08 am
The house has to be your primary residence. So unless you want to be roommates with a college kid you can’t rent it out. You can, however, invest your 7k even if it is your primary residence. You don’t have to put that cash towards the mortgage.
August 12th, 2008 at 2:42 pm
Jonathan,
I sent you an email with information and questions about this about a week ago. I’m sure others did too. Come on, can’t we get a little cred?
Good discussion though. That’s what I was after.
I believe Red mentioned the recent Marketplace highlight on this. If you bought a house recently (past few years), I’d look into this some more. It might still apply to you even though it doesn’t explicitly say so.
Also, the main purpose of this thing is that the interest-free loan helps you out with the downpayment on a new house, which we all know has risen higher overall as lender’s grow deeper into their own problems. The days of 0% down are largely over, so that $7,500 loan is helpful.
August 12th, 2008 at 7:23 pm
Me and my girlfriend both purchased our home together were not married. will we just get one lump sum of 7500 or will we both get money? If we only get 7500 dollars how will it work, like will it go on the primary buyer and then the primary buyer has to pay it back??
August 14th, 2008 at 2:12 am
Is anyone aware of any stipulation which might make us eligible for this tax credit -we had a closing date of 4/3 - took possession of the property 4/20/3008. we did not receive the title to the property until early May.
Are we out of luck ?
Thanks
August 15th, 2008 at 6:49 am
Does anyone know if the tax credit can be claimed on 2007 income and not 2008 income? I am going to close on an apartment in october, and using 2008 income, i would be not be qualified. Anything would be helpful.
Thanks
August 18th, 2008 at 11:28 am
I’m not sure why he’s getting so much praise for this article. I hit this link when Googling for information about the tax credit. This article doesn’t do anything except summarize someone else’s website.
Hopefully, before accepting $7500 from anyone, government or otherwise, you would research the stipulations of the deal. Or maybe you wouldn’t, and maybe that’s why the housing market is hurting so much right now.
Either way you look at it, the tax credit is not necessarily a bad thing. It’s actually a great idea to stimulate the housing market by encouraging renters to buy a first home. Where else will you find $7500 interest-free?
Admittedly, the term “tax credit” does seem misleading, but there again I emphasize the importance of doing some research on the issue.
-Dave.
August 18th, 2008 at 12:30 pm
You should all be talking to your CPA’s about the details of this interest free loan. The IRS hasn’t even published any code about the credit as of yet so be aware that these details may change- check irs.gov and don’t rely on blogs etc as your primary source.
Having said that, I don’t understand all the negativity surrounding this credit- it seems to me a classic case of ‘you just can’t please everybody’. It has been explained in no uncertain terms that tax payers will need to pay the money back starting in 2010. Have your employer take $10 more in federal withholdings each week so you won’t even notice the difference. Not to mention $500 will become less and less of a burden as the years go by- if you know anything about the time value of money you would understand why interest and inflation free is good, not bad.
Do you know how beneficial this money can be?! Put the money into some sort of investment product and let it accrue interest. If you put $7,500 into a CD with 4% APR you can almost double your money in 15 years- (and that is conservative considering you will have the ability to grow your money with rising interest rates and the government will not). Even if you decided to pay off your credit card bill you are saving money by not being charged interest by your credit card company. Put the money into your house and you are increasing your equity, on the government’s dime!
Also, the ‘credit’ isn’t enough money to push people over the edge and into their own home by next July so stop biting your nails over it. And stop complaining! If the credit doesn’t work for you than don’t apply for it but honestly, there is absolutely nothing to get upset about.
There are also other tax benefits for all homeowners this year so I suggest you guys check them out and when you do, try not to get too upset over the money that the government is letting you save in this horrible economic time.
Lighten up!
August 18th, 2008 at 12:43 pm
You know what makes me mad about this?
The fact that $170k is a ton of money outside of major metros like NYC/LI , San Diego, LA San Fran etc. But here on long island Nassau County its not. It’s actually just enough to get by. Nassau County, where my property taxes are 1/2 of what my 400k mortgage is and my 2 bedroom home would cost less than 125k in mid America or metros in TX, But I wont get this incentive. The government pays its employees based on the area the job is located why doesn’t the government adjust its incentives for the area the house was purchased. My Job, which helps me pay my taxes and the simple fact I have 90% of my family within 30 miles of here, forces me to live here. The fact that I pay the same tax rate as everyone else in my tax bracket but it costs me MORE to live doesn’t make it fair. There aren’t enough deductions out there to make it fair. Most of the country considers my wife and I “upper class”. I got news for you – We are at best middle class in my area.
We just closed on our House on July 31. At this point with all the fees (my mortgage tax was over 7k) that $7500 could go a long way in getting a better return to make improving our home (and its value) much easier…
I guess uncle sam wants me to hit up uncle home depot at 24.9% interest.
August 18th, 2008 at 3:35 pm
This $7,500 credit, despite being more of an interest-free loan than actual federal tax credit, it worth a lot if you consider what you can do with that money, and the time-value of money. You only have to repay $500 per year over the next 15 years (15 years times $500 per year = $7500).
For this example, we have some assumptions/pre-conditions:
-25% federal tax bracket
-6.7% fixed 30-year mortgage
-You can afford your home regardless of the tax credit
-I calculated a mortgage loan of $170,000 (reasonable starter home in **most** parts of the country - sorry NE, NW, and California especially).
-3% long-term inflation (this is a fair long-term rate).
If you take the $7500 and use it as a one-time principal payment at the end of year 1, you save yourself $38,813.58 in interest payments over the 30 year loan (you end up paying it over 26.5 years instead). If you turn this amount into real dollars (3% compounded over 26.5 years) and the $38k turns into $17,733.61 in today’s dollars.
Factor in the money you’re paying the federal government back is worth less over time. For that, use compounding inflation rates (I used 3%… keep in mind that inflation is nearly double that at today’s rates, but this needs to be a long-term calculation). By devaluing the $500 for each year for 15 years, your repayment to the federal government is worth $5,968.97 in today’s (real) dollars which means you’re also getting $1,531.03 in addition to the $17,733.61 saved in mortgage interest for a total of $19,264.64.
This does mean that you’re spending an extra $5,968.97 of your own money to turn it into $19,264.64 but it’s a decent return that you wouldn’t have otherwise.
ALTERNATIVE EXAMPLE - Building on the example above, let’s say you can afford the home (same as above), but you can’t afford to use this money (your own money when you’re paying the gov’t back $500 each year) to pay down the mortgage principal (in theory, you’re using $5,968.97 of your own money in my previous example). In this example, you’ll just let the money work for you.
1) Consider that you can have an extra $7500 in your pocket this year (or next if you buy then). You could invest it in stocks or you could put this money into a CD at the bank. For the sake of this example, we’ll play it safe with putting the money into a CD at the bank.
Year 1 - $7500 * .05 = $375 CD interest at maturity. Since you’re likely in the 25% federal tax bracket if you’re taking this credit, that’s $281.25 after taxes.
Year 2 - $7500 - $500 (pay back fed gov’t) + $281.25 from above = $7281.25 which you reinvest in a CD again and realize $273 more in after-tax interest.
Rinse and repeat for the next 15 years. After 15 years, you’ve earned yourself $3,200.30 in interest (after taxes, not adjusted for inflation) and would have $3,566.42 (still from the original $7500, not adjusted for inflation). That’s a total of $6,766.72 which converts to $4,343.30 in real dollars (adjusted for inflation over 15 years).
August 18th, 2008 at 3:36 pm
Building on my previous post, let’s say you can afford the home again, but you can’t afford to use your own money to pay down the mortgage principal (in theory, you’re using $5,968.97 of your own money in my previous example). In this example, you’ll just let the money work for you.
1) Consider that you can have an extra $7500 in your pocket this year (or next if you buy then). You could invest it in stocks or you could put this money into a CD at the bank. For the sake of this example, we’ll play it safe with putting the money into a CD at the bank.
Year 1 - $7500 * .05 = $375 CD interest at maturity. Since you’re likely in the 25% federal tax bracket if you’re taking this credit, that’s $281.25 after taxes.
Year 2 - $7500 - $500 (pay back fed gov’t) + $281.25 from above = $7281.25 which you reinvest in a CD again and realize $273 more in after-tax interest.
Rinse and repeat for the next 15 years. After 15 years, you’ve earned yourself $3,200.30 in interest (after taxes, not adjusted for inflation) and would have $3,566.42 (still from the original $7500, not adjusted for inflation). That’s a total of $6,766.72 which converts to $4,343.30 in real dollars (adjusted for inflation over 15 years).
August 18th, 2008 at 3:48 pm
Response to Mark - areas like yours with very high comparative real estate costs typically have jobs which compensate more and living there is often more desirable as well. If that weren’t the case, it wouldn’t cost so much. If you’re unhappy about that, I recommend getting a job somewhere else in the country where you could take full advantage of a bill like this.
You probably make double what your profession would pull in in Ohio or Michigan for example.
It is unfortunate (especially because it’s hard to live away from most of your family), but it’s a reality you must face. I considered moving to NY and LA for jobs, but I’d rather not get paid double only to have my rent/mortgage increase nearly triple.
Keep in mind, this bill was passed to help real estate where it’s crashing. That’s not the case for NYC. If you’re unwilling to live there for its current prices/cost, there’s someone else out there who is.
That is not the case in many other parts of the country where no one is willing to buy these homes for what people hope to get out of them or what banks want after the previous owners have been forclosed on.
August 19th, 2008 at 3:53 pm
@David: Either way you look at it, the tax credit is not necessarily a bad thing. It’s actually a great idea to stimulate the housing market by encouraging renters to buy a first home.
Actually, it’s a bad thing for a lot of people. If you live and deal in USD then the government has just deflated the value of your money by essentially “printing more of it”.
I’m a renter and now it’s even tougher for me to buy a home b/c house prices will “flex” to account for this adjustment. People will bid more on the house b/c of this tax credit which makes my potential home that much more expensive.
It’s also questionable whether or not we need to stimulate the housing market. In general, the housing market has been on a 15-year run with double-digit growth numbers meaning that home prices have far outpaced inflation. In the US, the median family income does not buy the median family home on a 25-year mortgage. These are just a few of many indicators that the housing market is over-priced and likely doesn’t need any stimulus (it probably needs to “chill”).
August 19th, 2008 at 6:39 pm
To Gates VP:
Like I said, the ‘credit’ is not for everyone but come on, it’s the the first time in a long time (maybe ever) that congress has passed a tax law that looks out for the little guy as opposed to their croneys.
As far as printing more money- that’s rediculous, the Federal Reserve Bank makes that decision, not Congress, and it doesn’t happen when tax law changes. The rest of the act (and you do have to read it) compensates for the credit. Paying back the credit (interest free mind you) over 15 years and a change in the capital gains exclusion will compensate for the initial credit. And for future reference, you can’t get anything for free, especially from the government, but it’s as close as we will ever get.
You people are a tough crowd I’ll tell ya!
August 20th, 2008 at 4:03 am
Gates VP says: “I’m a renter and now it’s even tougher for me to buy a home b/c house prices will “flex” to account for this adjustment.”
$7,500 is not enough money to get someone into a house they cannot afford. Not to mention you have to buy the house before you get the money. Which means you have nothing to worry about. Just try to buy before 2010 when all those arm loans that are defaulting start to clear up and prices should be at the bottom. You never know, waiting out the storm could end up being more lucrative than the $7,500 credit.
August 20th, 2008 at 10:25 am
This is an excellent article. With every law, it seems there are dishonest people who try to take advantage of consumers by using it to their advantage. It’s great to see blogs like this that are looking out for people.
August 20th, 2008 at 7:28 pm
Wait… How does this credit work out to the governments advantage?
August 21st, 2008 at 7:50 am
Lauren: As far as printing more money- that’s rediculous, the Federal Reserve Bank makes that decision, not Congress, and it doesn’t happen when tax law changes.
Umm, the Congress instructs the Federal Reserve to “print” more money. Either way “somebody” is giving you $7.5k that you have to pay back interest-free over 15 years. The question is, where does that $7.5k come from?
If the government is giving you the $7.5k, it’s not like they have it in the bank. They just “invent” the money and give it to you. If 10,000 people take advantage of this program, the government just creates $75,000,000 “IOUs” (dollars) and gives them to you. Now, with more of these dollars floating around, their individual purchasing power is reduced.
Yes, $75M is a small sum, but it’s just another of the constant dilutions.
August 21st, 2008 at 2:05 pm
Whoever makes the decision- tax laws do not involve the printing of more money, they compensate for themselves.
Which is why I’m curious that no one is upset about the capital gains exclusion esentially going away for people with second homes. I think the reallocation of the exclusion as it is described in the act is a great idea b/c it will be a self regulator for the housing market. But I’m really suprised no one has here thought to complain about it considering the people that were counting on the exclusion are the ones that will be paying for the $7,500 tax credit…
Unfortunately Gates VP, thin air will not be footing the bill for the credit, it is the people that need to sell their second home or rental property that will now have to pay a capital gains tax on their profit starting in 2008. I bet Jeff Lewis has a thing or two to say about that.
August 25th, 2008 at 11:47 am
Great information. After reading about 1/2 down I saw that it isn’t just a $7500 reduction off your income but an actual check sent to you with your rebate check. I am in the process of buying an $83K home in KY and this will be nice money for some new furniture or something for the house. Good to hear about this!
August 26th, 2008 at 8:25 am
Check this out!!! I just want to say I think this is a great idea for those of us that will use the money in a smart way…..For instance, I qualified for the VA loan being full time military. I don’t have to pay any down payment, and the seller is paying my closing costs. I do qualify for the tax credit full 7,500 which I plan to put up a privacy fence and build a nice size deck and paint where I choose to paint. All of this will only add value to the house. I think this is the best way for homeowners to use this money (home improvements).
August 26th, 2008 at 1:17 pm
I am taking advantage of this money and placing it in a money market account and leaving it there. I will then take 40 per month in addition to what I am already saving to “pay off” the 500 tax bill at the end of each year if need be. I think this is a good thing for someone who can manage their money, realize it has to be paid back, and who does not need it to live on. The whole intention of this credit is to be there for those who may find them in a situation like losing a job where the money can be used to pay for their mortgage and not go into foreclosure. I think people need to remember that this can go either way. You can have responsible home buyers who can pay for their house without the credit and this money would be extra or not so responsible buyers who got themselves into a house they couldnt afford and will use the 7500 in the first year to just get by possibly ending in foreclosure anyway. My personal opinion is that its a no interest loan from the government, make the money work for you by investing it or putting it away and get more out of it than you paid back.
August 26th, 2008 at 3:16 pm
My husband and I closed our house on April 8th… how crappy is that!! I mean, I could have lived with it if we had bought our home in January or even March, but one flippin’ day before the tax credit starts?? We are so bummed!!
August 27th, 2008 at 4:07 pm
That is a bummer- I guess it goes both ways, though. I am a lender and have a client who closed on April 9th!
August 28th, 2008 at 6:25 am
Does anyone know that if you took the down payment assistance if you are still elligible for the $7500 ‘credit’? I’ve heard conflicting information on this. Thanks!
August 28th, 2008 at 9:41 am
So is there a grace period for this? i mean, what about the people, myself included, that closed in the beginning of April, but before the 9th? Any loophole around this? Any possibility that the dates may change?
August 31st, 2008 at 6:56 pm
I am a first time homebuyer, but the house is an owner finance contract. Do I still qualify for this tax credit? We sign papers this month.
September 2nd, 2008 at 7:06 am
[…] $7,500 Tax Credit for First-Time Home Buyers at My Money Blog […]
September 3rd, 2008 at 8:56 am
I’ve said this before and I will say it again, talk to your CPAs!!! Having said that, the American Housing Rescue and Foreclosure Prevention Act of 2008 is officially a law (well, it has been but the IRS is finally setting the rules in place.)
FOR THOSE OF YOU WHO BOUGHT A HOUSE BEFORE 8/9/08!!! It looks like you will qualify for the tax credit if you MOVED INTO your home AFTER 8/8/08. Closing dates do not decide the date of ownership under this law. Just make sure you can substantiate the claim if you did move into your home after 8/8/08.
Also if you purchased your home from a spouse or other relative you DO NOT qualify for this credit so don’t play that game. The transaction has to be at ‘arms length’ as does most everything having to do with transactions and the IRS. Remember this as it is a huge no-no and one of the first things the IRS tests for when auditing.
Again, your best bet is to talk to your CPA. If you don’t have one and you just bought a home I suggest you go out and find one so they can help you with your credit and the other tax savings under this act. Shit, go to H&R Block if you need to do it on the cheap. This is a good year to find an accountant as the IRS is really trying to save Americans some money and you WILL miss out if you have assets and you don’t have an accountant.
Good luck everyone!
September 9th, 2008 at 5:57 am
My wife and I currently put an offer on a house and hoping to get it and close by Nov 1, 2008. Our combined income is 130,000. I will also be withdrawing 70,000 from my employee stock. I know that the 70K will need to be claimed as income which would total 200K for 2008 and make me not qualify for the 7,500 credit. Question is, can I claim the 70K for 2009 when I fill out my tax return in April 2010? Or, do I need to claim all income for that year when filing your tax return by April the following year?
September 10th, 2008 at 3:46 am
You need to file all 2008 income on your 2008 return, no matter when you file.
September 10th, 2008 at 3:55 am
One more thing!
You could try filing ‘married filing separately’ and maybe your wife would qualify for at least $3,500. Sometimes it’s worth it to file that way anyways but it can be a pain to figure out and it can be expensive to have your accountant figure it out. But, it sounds like in this case it might be worth a try- but have your accountant do it. Exercising an employee stock option can have other tax effects. Even though your employer will just add it to your W-2, they may screw up and you also may be subject to AMT. So that’s why I say get an accountant involved- you seem to have a lot going on this year
Good luck!
September 10th, 2008 at 10:32 am
This is helpful to me as I am about to buy my first home (in Boston no less $$$$) my down-payment and closing cost money is in mutual funds where they have been for 20 years or more. I was planning on setting aside a portion once I cashed out to cover capital gains taxes (since I will hopefully be closing in Nov./Dec I don’t think the normal home ownership tax benefits will balance out the thousands owed in capital gains tax).
I am young and confident that my salary will only increase in coming years so that extra $500 a year to the IRS won’t be a big deal when compared to the ability to put more towards things like installing a washer/dryer and motion detector lights now without COMPLETELY draining my savings temporarily.
I am in the crowd that has budgeted and I know what I can afford, but this will allow me greater flexibility in the short term and will not be too much of a burden in the long term.
WHEW….I just saw a comment about adding funds from stocks etc. to you income to qualify…I hadn’t thought of that! luckily I will be about $500 shy of the limit!! (I did read somewhere though that if your income is too high you can still get a percentage of the ‘credit’ based on how far over the limit you are)
September 10th, 2008 at 3:44 pm
I close on Friday with my first home at $87K. I am so looking forward to the $7500 next March.
September 17th, 2008 at 11:38 am
do you mean 500$ will be deducted or pay back on filing tax return?
September 18th, 2008 at 3:53 am
Really?
September 22nd, 2008 at 1:26 pm
Thanks for the post.
Some of you make some salient points here, however, with mortgage underwriting is more strict than ever and it is nearly impossible to get a mortgage if you can’t afford it. I know this because I am a first time buyer. The housing market in my area is stable, so in my case, homes are selling on avg. 95% of the asking price (if in good condition of course) the rest of the houses- where people couldn’t afford them in the first place stay on the market for over 75 days and the seller’s still refuse to lower the price b/c they are trying to recup. their costs.
I am taking the interest free loan. I can afford my mortgage. The $7500 will be helpful. And if the individual who takes it plans for it (the key here) they can have additional money taken out of their paychecks. For instance, we are planning to stay at our house 5 years (this could change)- so I will have them take $29 out every paycheck. (this is based on $3,750)
I see where it doesn’t make sense as my income is higher than someone who could only afford a house that costs $75,000.
September 22nd, 2008 at 1:43 pm
Several others have written concerning their displeasure for the chosen dates to qualify, and I am also here to ask a specific question:
How was this date in April chosen? What makes a person that bought their first home in February or March 2008 less qualified to take advantage of this credit as opposed to a person that purchased in April?
Any insight into this question?
September 23rd, 2008 at 7:25 am
Candice, good points.
I just wanted to caution you about ‘over paying’ the yearly $500 payback of the interest free loan. You would be better off having $10 taken out of your paycheck each week to cover the $500/year and have the other $19 put into an interest bearing account. That way if you do sell your house in 5 years you can pay back the rest of the loan in one lump sum and have money left over from the interest. And if you don’t sell your house you have a nice looking amount of money in your savings account.
Also, I don’t think the IRS will accept more than the $500/year, you are only required to pay as many taxes as you actually owe each year and not more. The IRS will more than likely end up refunding you the additional tax paid anyways and you will not have earned any interest on money. I am almost positive that they will not allow Americans to pay different amounts each year as that would create quite a bit of confusion for them and us accountants, but I could be wrong. Just find out b/4 you have the $29/week put into an IRS interest-less savings account
Good Luck!
September 24th, 2008 at 6:48 am
To everyone who has a complaint:
What are YOU going to do about it?
Let me guess: sit on your rumbus and wait for the world to change! Or post angry comments on the Internet!
Well, the change may not be what you expect or desire. Your comments are falling on deaf ears - even if you post to a government web site.
Go out and protest - stand up for your rights! Let’s make the government fear its citizens again - the way it should be. Ironically, people have time to protest the Anthony’s about Caylee, but have no time to preserve our way of life (which is deteriorating like sands in an hourglass).
September 25th, 2008 at 12:21 am
Lauren, thank you for your help. A CPA has been contacted and she also stated what you did that if we bought our house before 4/9 but can prove we moved in after 4/9, which we can, then we are good to go.
Once again, thank you.
October 3rd, 2008 at 7:27 am
[…] and here’s the catch: This credit had a 15 year recapture, which means it must be paid back to the US Treasury in 15 […]
October 14th, 2008 at 8:28 am
I’m hoping someone, anyone has any idea if there is a loophole my husband and/or I can git into here. We were married in September, and are closing on our house in November. The problem is, we are buying the house from his parents. Is there any way to prove that we are buying the house for fair market value so the fact that we’re buying it from his parents shouldn’t matter? I’m sure there isn’t, but I thought I would ask.
Also, if we file our taxes separately, could I qualify since they aren’t my parents (the law doesn’t say anything about in-laws from what I can tell)??
We were counting on this to help furnish our new home, and a lot of the information we read didn’t even mention that you couldn’t buy from relatives, so we’re pretty bummed. Help!!
October 14th, 2008 at 5:07 pm
Hello, I’m hoping someone can help me. I am currently looking to purchase a home with my girlfriend. We are not married but will both be going on the mortgage. We both make about 42,000/yr. How does this tax credit work for us? The house is going for $200,000. First, will we get $7500? Second, do we both claim this in our taxes or just one of us?
Any help would be awesome!
October 14th, 2008 at 6:26 pm
I dont think that anyone would tell yo a loop hole. you cannot be purchasing from family period. Even if it is your in-laws it is family. It is your husbands parents. Best bet is to talk to a CPA. I would cover your self by having someone else file your taxes for this credit.
Good Luck!
October 15th, 2008 at 7:42 am
I know. It is just unfortunate. I work at a CPA firm so I ask people practically daily how to get around it. We are using an FHA loan so the purchase will be completely legitimate. We are purchasing the home for the fair market value so it just kind of sucks that we get punished for it.
Some of the people I work with did say a taxpayer advocate could maybe argue for us, but I don’t think $7500 that we have to pay back is really necessarily worth it.
October 15th, 2008 at 12:36 pm
Hi, I have a question for anyone who knows about this tax credit deal. My fiance and I bought a house and we meet the date and income requirements. But to claim the tax credit you have to be a first time home buyer (not own a home in the last 3 years). I am a first timer but he owned a house and sold it on February 27th 2008. He was NOT on the mortgage loan but WAS on the deed. We were going to get married the end of this year but now I’m thinking we will wait until next year so that I qualify for the credit. If you are married you BOTH have to be first timers. But my question is, will I qualify for 7500 or only half of that since he is on the loan AND the deed for this house? I figure we’ll take the credit and use it to pay for a nice small wedding next year…..let me know if anyone has the answers to my questions, thanks!
October 15th, 2008 at 10:12 pm
Since we are all asking questions here… My wife and I just bought our first house Apr 18. Unfortunately we have found issues (mold) and are trying to find another place to have somewhere to live while going through the whole legal/arbitration thing.
In order to qual for another place the new one most likely will have to set as the new primary residence and the first one as secondary/rental. Which, by the way, we do hope to offer as a rental if/when it gets fixed.
So, if our first house was purchased as the primary residence but has to be switched to other, would we still qualify for the ‘loan’?
October 17th, 2008 at 9:41 am
I myself are excited about this Interest free loan/tax credit.
Me and my husband were tossing ideas about taking out a loan for home Improvements on our Fixer upper we just bought.
But now with our earned income and tax credit It will give us enough to do this and take a small vacation. And I wont even notice the payback as we have earned income that will offset the 500 payback.
October 19th, 2008 at 2:19 pm
Alright, after all this time reading everyone’s reply I think I only have one more question left! And no one seems to know the details of this thing!
Who gives you the “paperwork” needed for tax person/accountant (H&R block) that gets you the tax credit? The lender?
And when? Do you get the money? Once your approved for the loan or only when you close on the house (before July 2009)?
We want to know if this money can really go to the down payment & closing, or is it just going to reinburst later us once we pay it upfront?
BTW: We plan on buying a home at the end of our lease March 2009, right about when we get our tax return!
Any help would be nice
Thanks in advanced!
October 21st, 2008 at 1:00 pm
Cyndi,
My fiance and I are closing in November, from what I know, when I file my tax return for 08′, there should be a box for claiming this tax credit. You will then get it when you receive your normal return or payout. For instance, once I get my W-2 from work, I send it to my accountant immediately and he files my taxes for me, I generally end up getting a refund averaging approximately $1600 a year on or before March using Direct Deposit. Now, you will file for the tax credit and it will be included in your payout of your refund. So for instance, this year, I will get $1600 + $3750 (Other $3750 goes to my Fiance’s tax refund since it was purchased jointly and we are filing single separate right now)
October 22nd, 2008 at 1:54 pm
I bought a home 04/15/2008 and should qualify for the full 7,500. I bought a home that I can more than afford but it needs some work. I was planning on doing a little at a time.. over time with an out of pocket spending as I have it. Instead now I can get a lump sum to fix things now and pay it back over time instead. This is good since the price of home repairs are increasing along with everything else.
The new windows will help with energy costs. Now I can use government loaned money to pay for energy saving windows.. and then write that off on my taxes since I updated my home to be more energy saving. So who is double dipping now.. It is about time I can find a way around things. Just a small victory.. but still a victory.
October 24th, 2008 at 10:55 am
Can someone answer this one? On the “First Time buyer” - Loan, it is defined that a first time buyer can not have owned a primary or main residence in the last three years. In 2004 I seperated from my wife and I moved out and had a lease on a rental property that became my primary residence. I still was required to pay the mortgage on the home during the divorse and later ended up loosing the house to my ex in the divorse. The house was refinance without my name and I signed over ownership. Since this was not my residence since 2004 and can prove with utility bills and lease would I qualify for the $7,500.00?
October 25th, 2008 at 4:58 am
Leo,
The way I understand it, you have to have had no principal interest in another residence for 3 years. It makes no difference if you actually lived there. If your name was on a deed, you had interest in that house. I don’t mean interest as in money, it means interest as in you owned a share of that house. The day you signed the deed over to someone else in the sale is the day your 3 years starts.
Kelly
October 25th, 2008 at 7:31 am
If you can afford to pay your rent and you have good credit then you should be given the chance to own a home. This notion that you should have such and easy life that you are able to save up $50k in cash and then spend that all in one shot is ridiculous. This interest free loan is smart business in most of the country. The fact that it means little in NYC or San Francisco should not be a determination of its worth. From a social aspect home ownership is the only way to raise the quality of life in less affluent parts of the country. Renters often have little stake in there communitys Home owners usually care what happens around them. Homeownership in one of the keys to revitalizing our crumbling society. This tax credit is a good thing.
October 25th, 2008 at 10:19 am
My husband and I closed on our first home in August. We are in the process of renovations and have not “moved in” as of yet. This is our first time to buy a property, however we “own” the residence we are occupying now. This is a result of inheriting the land from his grandparents and the mobile home from my grandparents. The property we occupy is homesteaded in my husbands name and we cannot “homestead” the new house until Jan. ‘09. My question is this, since our present property was inherited and not a purchase and the new home is truly our very first home purchase ever, will we qualify for this “credit/loan”? We meet all the other requirements as far as income, time of purchase etc. We do not intend on selling our present home but instead are giving it to our daughter to live in once the renovations are completed on the home we purchased in August.
October 27th, 2008 at 5:01 am
I love the idea of this loan/credit. I think I’m over the salary, cap and I may not be able to get it, BUT, it would be nice to take that 7500 dollars and hold it in a CD for the next 15 years… Depending on the return rate, you could earn several thousand dollars just letting it sit there for teh durtion of the loan….
November 5th, 2008 at 6:14 pm
I’m kinda confused. here’s my story…we are closing on our house Nov. 24th and the seller is paying $5900 in closing cost and we are paying the other $3100 and we were told that we get the tax credit to cover that $3100. And we were under the impression that we could only get anything UP to $7500 to cover the closing costs not the whole 7500. so we would only get the 3100 back. So as I’m reading over all these posts it would seem as if we could get the whole 7500…so is that true??
November 8th, 2008 at 10:53 am
It there a way to pay this back early rather than paying it off over 15 years?
November 8th, 2008 at 7:19 pm
`(a) Allowance of Credit- In the case of an individual who is a first-time homebuyer of a principal residence in the United States during a taxable year, there shall be allowed as a credit against the tax imposed by this subtitle for such taxable year an amount equal to 10 percent of the purchase price of the residence.
`(b) Limitations-
`(1) DOLLAR LIMITATION-
`(A) IN GENERAL- Except as otherwise provided in this paragraph, the credit allowed under subsection (a) shall not exceed $7,500.
`(B) MARRIED INDIVIDUALS FILING SEPARATELY- In the case of a married individual filing a separate return, subparagraph (A) shall be applied by substituting `$3,750′ for `$7,500′.
`(C) OTHER INDIVIDUALS- If two or more individuals who are not married purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated among such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $7,500.
`(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME-
`(A) IN GENERAL- The amount allowable as a credit under subsection (a) (determined without regard to this paragraph) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the amount which is so allowable as–
`(i) the excess (if any) of–
`(I) the taxpayer’s modified adjusted gross income for such taxable year, over
`(II) $70,000 ($140,000 in the case of a joint return), bears to
`(ii) $20,000.
`(B) MODIFIED ADJUSTED GROSS INCOME- For purposes of subparagraph (A), the term `modified adjusted gross income’ means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.
`(c) Definitions- For purposes of this section–
`(1) FIRST-TIME HOMEBUYER- The term `first-time homebuyer’ means any individual if such individual (and if married, such individual’s spouse) had no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which this section applies.
`(2) PRINCIPAL RESIDENCE- The term `principal residence’ has the same meaning as when used in section 121.
`(3) PURCHASE-
`(A) IN GENERAL- The term `purchase’ means any acquisition, but only if–
`(i) the property is not acquired from a person related to the person acquiring it, and
`(ii) the basis of the property in the hands of the person acquiring it is not determined–
`(I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or
`(II) under section 1014(a) (relating to property acquired from a decedent).
`(B) CONSTRUCTION- A residence which is constructed by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence.
`(4) PURCHASE PRICE- The term `purchase price’ means the adjusted basis of the principal residence on the date such residence is purchased.
`(5) RELATED PERSONS- A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707(b) (but, in applying section 267(b) and (c) for purposes of this section, paragraph (4) of section 267(c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants).
`(d) Exceptions- No credit under subsection (a) shall be allowed to any taxpayer for any taxable year with respect to the purchase of a residence if–
`(1) a credit under section 1400C (relating to first-time homebuyer in the District of Columbia) is allowable to the taxpayer (or the taxpayer’s spouse) for such taxable year or any prior taxable year,
`(2) the residence is financed by the proceeds of a qualified mortgage issue the interest on which is exempt from tax under section 103,
`(3) the taxpayer is a nonresident alien, or
`(4) the taxpayer disposes of such residence (or such residence ceases to be the principal residence of the taxpayer (and, if married, the taxpayer’s spouse)) before the close of such taxable year.
`(e) Reporting- If the Secretary requires information reporting under section 6045 by a person described in subsection (e)(2) thereof to verify the eligibility of taxpayers for the credit allowable by this section, the exception provided by section 6045(e) shall not apply.
November 13th, 2008 at 1:52 pm
Good thing you posted this Warren, I think it’ll back up what I wanted to say.
I checked with my mortgage company today, and they said that to qualify for the $7500, I need to get a Government Loan (FHA, etc).
Please correct me if I’m wrong, but the (d)(2) section says qualified mortgage…..an that must be a FHA or another type of gov’t loan.
November 25th, 2008 at 2:04 pm
I was looking for info about any exemptions, loopholes, etc. regarding the $7500 credit because I closed on my house on March 26. So, I was excited to read what was posted by Lauren (September 3, 2008) and Gary (September 25, 2008) about the date being your move-in date, not necessarily your closing date.
I talked to my CPA and he said that he understood how some people would be able to qualify in that situation. The move-in date scenario would be for people who may have bought a lot before April 8, then constructed a NEW home and could not move into the home until after the April 9 date. It was about when the house would be available for occupancy. If you were buying an already built home, the house would be available for occupancy on the day of closing, which is considered the “purchase date” in the bill.
So, all you who bought a previously built home before April 8, don’t get too excited until you talk to your CPA.
November 25th, 2008 at 2:21 pm
When Lauren (September 3, 2008) and Gary (September 25, 2008) talk about people being able to use a move-in date as the date of purchase, it can be misleading.
This scenario is for people CONSTRUCTING (not buying) a NEW home, and then the move-in date would be treated as the “purchased by” date.
Here’s the language from the bill…
‘‘(B) CONSTRUCTION.—A residence which is constructed
by the taxpayer shall be treated as purchased by the taxpayer on the date the taxpayer first occupies such residence.”
November 27th, 2008 at 11:24 am
My wife and I are going to put new windows in our home with this $7,500 interest free loan! PLUS we will be able to claim up to $500 because we will be making an energy efficient upgrade to our home in 2009! Awesome deal!