$7,500 Tax Credit for 1st Time Homebuyers

As part of Housing and Economic Recovery Act that was signed into law in July, a $7,500 tax credit was extended to qualifying individuals. While at first glance, this seems like a sure-fire method to increase home purchases across the nation, there are eligibility requirements that need to be examined.

First off, the $7,500 credit is not a one time reduction of your taxable income; it is actually an interest free loan that will be paid back over a 15 year term. So if you qualify for the full amount, you would owe the government $500/year. Also, it is technically a 10% credit of the purchase price of the home, up to $7,500. So if you are buying a home less than $75,000 you will not be eligible for the full amount.

You must be a first time homebuyer. The definition is a buyer who has not owned a principal residence 3 years prior to the home purchase. Single family detached homes, townhouses and condos are all acceptable under the new credit as long as it is used as your primary residence.

There are income limits. If you are filing as single or head of household, your yearly gross income cannot exceed $75,000. If you are filing jointly, the limit doubles and you are allowed a max gross income of $150,000. If you make more than the limit, you may still be eligible for a credit, but it will be reduced down from the $7,500 amount.

You must have purchased your home between April 9, 2008 and July 1, 2009. The government may allow you to apply this credit if you purchased earlier in the year if you meet the all the other eligibility guidelines.

If you and your property meet all these guidelines, you will be able to claim this on your federal tax return. Overall, with plenty of available housing and low mortgage rates, this credit will help with those buyers who are purchasing a new home, but is not beneficial enough to solely justify purchasing a home if you are on the fence.

You can read up on the specifics of the tax credit
http://www.federalhousingtaxcredit.com/glance.php

The IRS also has some more detailed information
http://www.irs.gov/newsroom/article/0,,id=186831,00.html