November 12th, 2008 11:09 PM by Heather Brown
Is it a Tax Credit or is it a Loan?
The New $7,500 credit for new homeowners in HR 3221 signed by the President on July 30th, effective from October 1, 2008 into 2009, depending on the section of the act, is not really a credit. It's a loan. Those who qualify to receive this credit will receive 10% of the purchase price of their home -- up to $7,500 in the first year. Then they will repay the loan over a 15 year period, starting in the second year after the taxable year in which the house is purchased.
If you bought a home in August 2008, you start paying back 6.667% of the original credit on your 2010 tax return. This credit applies to purchases of new homes on or after April 9, 2008 and before July 1, 2009.
* This is a refundable credit. That means, even if your total tax liability is zero, you can file to get this money directly from IRS.
* Although this is a loan, it is a zero-percent loan.
* Bonus: If you buy the home in 2009, before July 1, 2009, you can make an election to report the purchase on your 2008 tax return and get the refund a year early.
* People who normally don't have to file tax returns will need to start filing tax returns just to pay the credit back. That will affect seniors living on modest fixed incomes and Social Security.
* If you forget to pay it back? Well, the bill doesn't include any specific penalties. But all of IRS's usual non-filing and nonpayment penalties will apply. Expect IRS computers to track this and to issue notices for unfilled returns.
* If you sell the house in less than 15 years, you will have to repay the rest of the credit immediately. This means the remainder of the unpaid tax credi will be paid at the closing table and will ultimately affect the bottom line net profit of the sale of your home. This requirement is waived if the owner dies. There are special provisions when the house is sold due to divorces or other emergencies.
* This is a temporary credit and may not be renewed once it expires on June 3, 2009.
* The credit phases out for married folks, filing jointly, with modified adjusted gross income (MAGI) between $150,000 - $170,000. For singles, the phaseout is a MAGI between $75,000 - $95,000.
Who qualifies? Folks who haven't owned a principal residence for three years before buying the new home. If you've owned a vacation home or timeshare, you will still qualify.
In long-distance marriages each spouse may buy his/her own home (principal residence). They will have to split the credit between them.
Please contact the IRS for specifics on this program. This information is deemed reliable but is only informational and should be checked out by the buyer for exact program details.
*information deemed reliable but should be verified by buyer.
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