The single largest provision in the $15.1 billion package of housing tax
incentives in the recently enacted Housing Assistance Tax Act of 2008 (the
"Housing Act") is a measure allowing individuals buying their first home to
take a tax credit of up to $7,500 of the purchase price. Qualified
homebuyers can subtract the credit amount from their federal income tax when
they buy a home and even get a refund if the credit exceeds the tax.
However, they are then required to pay the credit back over 15 years. The
result is that the credit resembles an interest-free loan that must be
repaid to the government. Here are the details of the new credit:

    * The home must be located in the U.S. and must be the taxpayer's
principal residence (main home). The taxpayer (and the taxpayer's spouse if
married) must not have owned another principal residence in the U.S. in the
three-year period before purchasing the new home. Thus, the home doesn't
literally have to be the taxpayer's first home.
    * The home must have been purchased from April 9, 2008 through June 30,
2009, inclusive. Purchases from certain related persons and acquisitions by
gift or inheritance don't qualify. A home constructed by the taxpayer does
qualify if the taxpayer moves in from April 9, 2008 through June 30, 2009.
    * A special rule allows taxpayers who purchase a principal residence in
the first six months of 2009 to treat the purchase as if made on Dec. 31,
2008. This allows the taxpayer to claim the credit for 2008 rather than
2009.
    * The credit is equal to 10% of the price paid for the home, up to a
maximum of $7,500. The $7,500 maximum credit applies both to individuals and
married couples filing a joint return. A married individual filing
separately can claim a maximum credit of $3,750.
    * The credit is phased out for individual taxpayers with modified
adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and
$170,000 for joint filers) for the year of purchase. Taxpayers with modified
AGI over $95,000 ($170,000 for joint filers) can't claim the credit.
    * The credit is refundable, meaning that households with incomes too low
to owe income tax can benefit from it.
    * In the second year after purchase, taxpayers who took the credit must
start paying back the credit in equal installments over 15 years, with no
interest charge. This works as follows. Suppose a first-time homebuyer
purchases a home for $100,000 this coming December and claims the maximum
credit of $7,500 on his 2008 tax return. He would then be required to pay
back $500 (one-fifteenth of the credit) on his tax return for 2010 and for
each of the following 14 years, through 2024.
    * If the taxpayer sells the home (or the home ceases to be the principal
residence of the taxpayer or the taxpayer's spouse) before complete
repayment of the credit, any remaining credit is due on the tax return for
the year in which the home is sold (or ceases to be the principal
residence). If the home was sold at a loss to an unrelated person, repayment
of the remaining credit is forgiven to the extent of the loss.
    * No credit is allowed if: the taxpayer was ever entitled to a D.C.
homebuyer credit; the home purchase was financed through tax-exempt mortgage
revenue bonds; the taxpayer is a nonresident alien; or the taxpayer disposes
of the residence (or it ceases to be a principal residence) in the year of

               

                                Charlene Beetz, Mobile  603-315-8264

                                  Broker/Associate/REALTOR

                                  Certified Residential Specialist

                                  RE/MAX Hall of Fame Recipient

RE/MAX Area Real Estate Network, LTD

685 Massabesic St., Manchester, NH 03103

603-626-5000 x 111  fax: 603-621-4168 Direct Line: 782-4426

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