Hi Desert Real Estate Forum

As part of the Housing and Economic Recovery Act of 2008, a first time home buyer tax credit is now available. This special tax benefit expires 1 July of 2009. A similar tax credit has been available in Washington DC for some time, but now thanks to the Housing and Economic Recovery Act this benefit is now available to first time home buyers nationwide

To be eligible for this tax credit a home buyer must purchase a primary residence between 9 April 2008 and 1 July 2009. Also you (and your spouse, if married) must not have owned your principle residence during the 3 years preceding the purchase, nor can you have ever participated in the Washington DC program. There is also an income component of qualification; a single person with an adjusted gross income of $75,000 a year or less will qualify for a 10% of purchase price tax credit (up to$7,500). A married couple with a combined adjusted gross income of $150,000 or less per year will qualify for the same tax credit. The amount of the tax credit decreases as income increases and therefore is not available for single adjusted gross incomes over $95,000 per year or married couples with combined adjusted gross incomes of over $170,000 per year.

What does this credit mean to you? Let’s say you purchase a home for $200,000 earning the entire $7,500 credit. Let’s also assume that you would pay (without the credit) $2,000 in income tax for the same year. By utilizing this tax credit you would receive an overall tax return of $5,500.

There is always a catch. This tax credit must be repaid over a 15 year period. 2 years after the credit is claimed you must pay it back at the rate of $500 per year until paid off. Should you sell the house prior to the payoff then the balance must be paid at time of sale, unless the home is sold at a loss, then no repayment is required.

What is the benefit of this tax credit. In theory, money today is worth more than money will be in the future, therefore, taking the money now and paying it back with dollars that are worth less makes economic sense.

This tax credit is available on all single family residences located in the United States. Additionally, this credit is available with the purchase of condo’s, co-op’s and townhouses as well. This credit may not be used if the purchase is between family members or classified as a gift.