7,500 Reasons to Buy a New Home in 2008

With sales of new and existing homes slowing down in the wake of recent mortgage lender failures, the United States government has created a new and attractive program for first time home owners. The program involves providing a $7500 tax credit for purchasing any type of home. This means you can have up to $7,500 less to pay the government this year. For example, if you owe around $5,000 in taxes and you claimed the full credit, he would receive a refund of the $2500 remainder.

In order to qualify for the tax credit, the home must be purchased after April 9, 2008 and before July 1, 2009. The purchase date is considered the date when closing occurs. In order to be eligible for this program, one must have never owned a home within the past three years. This condition applies to married couples as well. If one member has owned a home within the past three years then the couple is not eligible. Ownership of a vacation or rental property not used as the principal residence does not disqualify a person from this credit.

In order to claim the tax credit one must complete a federal income tax return. Town homes, condominiums, houseboats, and mobile homes all qualify for this credit. It is important to note that this tax credit must be paid back the government within 15 years or when the home is sold. The homeowner does not have to start making repayments on the credit until two years after the credit is claimed. If the homeowner sells the home, and there is sufficient capital gain from the sale, the remaining credit amount would be due from the profit. If there is insufficient profit, then the remaining amount would be forgiven.

Since the funds must be repaid in full, this can be considered a traditional zero-interest loan. If we assume an interest rate of 7%, a homeowner would save up to $4200 in interest payments over a 15 year repayment period. If the $7,005 were financed through a 30 year mortgage with a 7% interest rate the homebuyer would save over $8,100 in interest payments. This program is considered a tax credit only because it operates through the tax code and is administered by the IRS. In addition it provides reduction in total tax liability in the year it is claimed.

Source : http://www.federalhousingtaxcredit.com/faq.php

Source: http://www.irs.gov/pub/irs-pdf/p519.pdf