The Housing And Economic Recovery Act: Tax Credit!
Posted by Kevin Kueneke | Visited 1828 times, 1 so far today | Currently 1 Comment »
The recently passed Housing and Economic Recovery Act (HR 3221) has many nuts and bolts. Quite possibly the best part of the legislation is the new tax credit. This tax credit is for First Time Homebuyers (no ownership of a principal residence in the past three years; vacation or rental property ownership is o.k.) whose loan closed between April 9, 2008 and June 30, 2009.
The highest amount of the tax credit will be $7,500 for individuals earning up to $75,000 and couples earning up to $150,000. The credit is still available for those individuals earning up to $95,000 and couples up to $170,000, however to a lesser degree.
A tax credit is superior to a tax deduction. A tax deduction is added to all of the other deductible items on Schedule A (medical expenses, charitable contributions, home interest, property taxes, unreimbursed employee expenses, etc.) and then that amount is deducted from the adjusted gross income, giving you the bottom line income from which the income tax is calculated. 
A tax credit is taken after all of the deductions are calculated, the adjusted gross income is calculated, and the income tax is determined – then the $7,500 comes off of that amount! If the taxpayers owe less than $7500 in taxes, the difference between what they owe and the $7500 is payable to them as a tax refund. Owe $10,000? Now you only owe $2,500. Owe $5,000? Now you get a $2,500 refund.
This tax credit is not necessarily a gift…it is an interest-free, 15-year loan. The taxpayer must pay back 6.67% of the credit amount each year until paid in full. This equates to about $500 per year for the maximum credit of $7,500.
If the homebuyers sell their home within 15 years, and the gain on the home is less than the amount of the credit, then the remaining portion of the tax credit is forgiven. If the gain is greater than the remaining portion of the tax credit, then the balance will be due for that year’s income taxes.
Aside from income limitations, the credit is for 10% of the sales price of the home up to a maximum of $7,500. This means that the maximum credit starts at a sales price of just $75,000!
The reality is that many people will benefit from this program. Have more questions? Please feel free to contact me via phone (760)500-1919 or email me and I will be more than happy to discuss your particular situation.
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