Tax Credit Opens Door for First-Time Homebuyers

At a whopping 690 pages, the new Housing and Economic Recovery Act of 2008 is by no means light reading. Ironed out in part to stimulate home sales, the law gives first-time buyers until next July 1 to close on a house and get up to $7,500 sliced off their tax bill.

With the clock ticking, homebuilders and real estate agents are encouraging renters and others who qualify – including those who haven’t owned a home in three years – to take action before time runs out.

“The one-two punch of a slow housing market and high inventory puts renters in a good position to get a great value on their first home,” said Martin Hernandez, national vice president of sales for Beazer Homes. “Add the weight of the new tax credit, low interest rates and all the great incentives being offered, and first-time homebuyers have an opportunity to get a lot more home for their money.”

While the temporary tax credit passed by Congress aims to help hundreds of thousands of first-time home buyers, a recent survey conducted by Market Tools on behalf of Beazer found that less than one-fourth of respondents (23 percent) were aware of it. What’s encouraging, however, is that 29 percent said the availability of such a credit would increase their likelihood of buying a new home now.

“Purchasing a new home may be confusing for some, but add a temporary tax credit to the mix and the questions just pour in,” said Hernandez. “The key is getting the word out and educating the public before the tax credit fades away.”

Hernandez points first-time buyers to www.beazer.com/webinar where the national homebuilder has uploaded an educational video webcast in both English and Spanish. Beazer also is offering complimentary seminars in many of its communities to help guide buyers through the new tax provision.

Nuts and bolts
Current homeowners don’t qualify, but if you rent, or have not owned a home in the past three years, you are likely eligible. All homes qualify, including new houses, town homes, condominiums and re-sales.

The credit equals up to 10 percent of the purchase price, up to $7,500. You must be a resident of the United States and plan on living in the home as your principal residence.

Your modified adjusted gross income must be $75,000 or less if you’re single and $150,000 for couples. A partial credit may be available for singles making up to $95,000 a year and couples who earn up to $170,000.

Tax credit lingo
Unlike a tax deduction, this is a tax credit, meaning there is a dollar-for-dollar reduction in the amount of tax owed the IRS. Therefore, if a new buyer owes $7,500 in income taxes but also qualifies for the maximum credit, nothing will be owed to the IRS that year.

Others may receive a check. For example, if you expected to receive a tax refund of $1,000 and you qualify for the full $7,500 tax credit, you can expect to receive a check from the IRS for $8,500.

Pay back provision
Different from other tax credits, this one must be repaid. Beginning in the second tax year following purchase, the full $7,500 credit is repaid at $500 each year over a 15 year period. If the home is sold and no profit is made before the credit is repaid, the remaining balance is forgiven. If a profit is made, the repayment cannot exceed the amount of the gain.

“The tax credit is in effect a zero interest loan,” said Hernandez. “Any way you look at it, the tax credit saves you money.”

When to claim your credit
First-time buyers who purchase a home between April 9 and Dec. 31 can claim the credit on the 2008 tax return. Purchases made between Jan. 1 and April 15 can be claimed on the 2009 return, or the 2008 return by filing an amended return.

For more information
The National Association of Home Builders also has set up a special website at FederalHousingTaxCredit.com with detailed information on the tax credit. Homebuyers also are encouraged to seek the advice of appropriate tax, legal and financial experts.