Features of the new $7,500 first-time home buyer tax credit

The $7,500 first-time homebuyer tax credit was recently enacted as part of the Housing and Economic Recovery Act of 2008. We've outlined the basics for you below.

• Tax credit amount: Up to 10 percent of the cost of the home, not to exceed $7,500.
• Eligible property: Any single family, condo or co-op property that is used as a primary residence.
• How it works: The credit reduces the tax liability for the year of the purchase. Buyers who use the credit by December 31st can apply the credit to their 2008 tax return.
• Income limits: The full amount of the tax credit is available to individuals with an adjusted gross income of no more than $75,000 (or $150,000 for couples filing jointly). The tax credit is applied by a sliding scale and phases out at $95,000 for individuals and $170,000 for couples.
• Other eligibility requirements: The purchaser and the purchaser's spouse may not have owned a principal residence in the 3 years prior to the purchase.
• Alternative minimum tax ramifications: None. The tax credit will not put an individual into an AMT position.
• Credit repayment: The claimant re-pays 6.67% of the credit each year for the next 15 years. If the home is sold before the 15 years is up, the claimant re-pays the remaining balance at the time of the sale.
• Program ends: July 1, 2009.

Adding it all up, the tax credit essentially amounts to a 15 year interest-free loan. For example, let's suppose a first-time home buyer is eligible for the full $7,500 credit and purchases a home by December 31st, 2008:

• The buyer will reduce her tax liability for her 2008 tax return by $7,500.
• The buyer will gradually pay back the credit by paying $502.50 each year over the next 15 years.

Feel free to email me with any questions you may have about the plan. You'll also find this FAQ from the National Association of Realtors to be a handy reference.