So I open up my news feeds yesterday, and in big bold letters I see the title “Beware of the $7500 Tax Credit” on a CNNMoney headline. Even though there is an entire website dedicated to explaining the ins and outs of this new ‘tax credit’, I can’t help but feel that buyers out there must be confused by these warnings and poised critics. So in response, I am going to address some of these issues as well as detail the fundamental elements of this “mystery” tax credit.
Who is Eligible?
- First Time Home Buyers or those who have not owned a home in three years
- Individual income must be less than $75,000 and couples with income less than $150,000. Those outside of these income requirements may be eligible for partial credits.
What You Get
- A tax credit is issued for 10% of the sale price with a maximum amount of $7500
- Most will qualify for the $7500 tax credit, but if your house is less than $75,000 you will receive up to 10% of the purchase price. (i.e. $65,000 sale = $6500 tax credit)
- If the tax credit is less than the taxes you owe, you will pay the difference. If the tax credit is more than the taxes you owe, you will receive a refund.
- If you owe $8500 in taxes and received a $7500 tax credit, you will pay $1000. If you owe $5000 in taxes and received a $6000 tax credit, you will receive $1000
How You Pay it Back. Yes, you do have to pay it back.
- Borrowers are required to start paying back the loan after 2 years and it must be paid off within 15 years.
- If you sell the home, the remaining balance is paid for with the profits of the sale. If you sell the house at a loss, your remaining balance is forgiven
- Essentially, the tax credit is a zero percent loan for 15 years.
So there you have it - hopefully this eases any worries and will serve its purpose of stimulating the appetite for this market. While it still might be intimidating for some, it will be interesting to see how these government incentives play out in the future. For more details and some of the FAQs, be sure to check out the First Time Home Buyer Tax Credit website.
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Do you have to send in a monthly payment or does it come out of your tax return every year or your taxes deducted from you paychecks?
Per the FAQs:
“The program is called a tax credit because it operates through the tax code and is administered by the IRS.”
“So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed.”
It seems as though it will be “paid” through your yearly tax returns since this would be according to how the credit was issued in the first place.