Lately, I get a lot of questions about the tax credit. Almost everyone has heard of it, but for many questions remain unanswered. A first time buyer is eligible for a tax credit up to $7,500 (maximum 10% of purchase price). Here are some specifics:

The tax credit was passed with the Housing and Economic Recovery Act in July of 2008 to stimulate real estate markets, even before the “bailout bill” became law in October. It is not permanent. It applies only to qualified purchases between April 9, 2008 and July 1, 2009.

How does it work – what is it?

The home buyer tax credit works just like a loan which has to be paid back within 15 years, however it is INTEREST FREE. One of the qualifying criteria for the home buyer tax credit is that he cannot have owned a principal residence within the last three years. Among other criteria are income levels below $75,000 (up to $90,000) for single and $150,000 (up to $170,000) for married (joint) filers. The tax credit reduces the home buyer’s tax liability by the credit amount he is eligible to receive. That means; if you qualify for the $7,500 tax credit, but only have a tax liability of $2,500, you will most likely not get more than $2,500.

When this legislation passed, it also included a provision limiting the $250,000/$500,000 capital gains exclusion (where a person converted a secondary home to a principal residence). Part of the gain may be taxable when the property is sold, even if the owner lived in the property two of the last five years.

Disclaimer: This article is general information and no tax advice or legal advice. Consult a Certified Public Accountant or an Attorney to verify how the tax credit would impact you. 

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