H.R. 3221, the Housing and Economic Recovery Act of 2008, passed by Congress and signed by President Bush on July 30, is designed in part to stimulate the depressed housing market by allowing first-time homebuyers a tax credit of $7,500 on the purchase and closing of any (new or pre-owned) home prior to prior to July 1, 2009. A tax credit is a dollar-for-dollar reduction of a homebuyer's tax liability. For example, if you owe $2,000 in taxes for either the 2008 or 2009 tax year, you will receive a credit of ($7,500 - $2,000) $5,500 through your participation in the program. The government will issue you a check in the amount of your credit.
Sound too good to be true? Well, in part it is. The amount of the credit you receive is actually a no interest loan that has to be paid back to the government at a rate of $500 per year over a 15 year period. But, all is not bad. If you were to borrow $7,500 amortized over a 15 year period at a 6.5% interest rate, you would actually pay back $11,760. Perhaps the greatest benefit to many buyers is that it provides immediate cash that can be used to reduce current liabilities such as high interest rate credit cards.
Who is eligible for the credit? Any buyer who is a true first-time homebuyer, or who has not purchased or owned an owner occupied home in the past three years is eligible for the credit, subject to certain income restrictions. To receive the full tax credit, a single buyer is limited to $75,000 modified adjusted gross income; a married couple can earn as much as $150,000. Any amounts in excess of these income will not necessarily disqualify a buyer, but will reduce the amount of the credit.
There is no upfront paper work to be completed. Eligible buyers need only to be able to provide proof of purchase and apply for the credit when filing their 2008 or 2009 federal income tax return.
For a full explanation H.R. 3221, go to: www.federalhousingtaxcredit.com, or contact me at: EdBarrett@satx.rr.com or (210) 681-5252