As a member of the Houston Association of REALTORS® Bay Area Political Affairs/Leadeship, I have been fortunate enough to follow the $7,500 Tax Credit as it makes its way towards being a true tax credit. For the past few months it was called a Tax Credit and it was actually an interest free loan(the only tax credit on the books that had to be paid back). Finally it is officially a true tax credit for First Time Home Buyers. Ever since the tax credit became a true tax credit I have been searching for a single piece of literature that will sum this tax credit up and make it easier for me to explain, with confidence, how it actually works.
So Here it is:
By Kenneth R. Harney
Saturday, January
24, 2009; F01
Should you give the $7,500 home-buyer
tax credit a second look? Now that Congress might be on the verge of
transforming it into a true tax credit -- one that never has to be paid back --
you might want to do so.
On Jan. 15, the House Democratic
leadership outlined its $825 billion economic
stimulus package, loaded with $275 billion in tax cuts and $550 billion
in new spending on health care, education, alternative energy and infrastructure
improvements.
Tucked away in the tax section was a
significant improvement to last July's congressional effort to stimulate home
sales. That program offered a credit of up to $7,500 to purchasers who had never
bought a house or hadn't owned one during the previous three years. To qualify,
taxpayers would need to close on a house between April 8, 2008, and this coming
July 1.
But relatively few people were
attracted to the plan because unlike almost all other federal
tax credits, this one had to be repaid in full over a 15-year period. In
effect, the $7,500 was more like an interest-free installment loan from the government than a
straightforward dollar-for-dollar reduction on buyers' tax bills.
Although final details on a revised
credit are still subject to negotiations between the House and Senate -- and to
passage of the economic stimulus package itself -- there's a good chance that
buyers who sought the credit in 2008, and new purchasers in 2009, will be
relieved of the repayment requirement.
According to industry projections,
removing the repayment rule could lead to an additional 202,000 purchases this
year. The National Association of Realtors is pushing for the July 1 deadline to
be extended to Dec. 31, opening the door to even more sales.
Meanwhile, the IRS has come out with
two recent advisories on the credit, plus a new Form 5405 for taxpayers
interested in claiming the $7,500 benefit, either for 2008 or 2009. You can
download a copy of the form at http://www.irs.gov in the publications and forms section.
Based on the latest IRS guidance,
here's what you need to know if you're thinking about buying a house this year -- taking advantage not only
of low prices and record low mortgage rates, but a temporary tax credit that
might or might not eventually have to be repaid.
· The $7,500 is available to singles,
married couples filing jointly and unmarried co-purchasers, provided they meet
the non-ownership test for the previous three years. Married couples filing
separately can claim up to $3,750 each. Unmarried individuals can allocate the
credit on their filings according to their respective ownership shares or capital investments in the
house.
· Only principal residences -- or in
the IRS's words, "the one you live in most of the time" -- are eligible. No
second homes, investment properties or houses outside the United States pass the
test. However, the definition of "home" extends far beyond conventional houses
sited on lots. It "can be a . . . houseboat, housetrailer, cooperative
apartment, condominium or other type of residence," according to Form
5405.
For example, if you buy a sailboat or
powerboat with full living facilities, tie it up at a marina, and make it your
"main home," you should be eligible to claim the credit, though you might want
to run all the specifics of your situation by your accountant or tax
adviser.
· Even if it's your first home
purchase, you are not eligible if your adjusted gross income is above $95,000
(single filer) or $170,000 (married joint filers). Married couples with incomes
between $150,000 and $170,000 are eligible for reduced credits, based on a
phase-out schedule. Single filers with incomes between $75,000 and $95,000 also
are subject to reduced credit
limits. D.C. home buyers who are eligible for the city's first-time buyer
credit are barred from use of the federal tax credit. Taxpayers who use
tax-exempt mortgage bonds issued by state or local governments to finance home purchases also are
ineligible..
· You can't claim the $7,500 credit if
you buy your house from a "related person," meaning a spouse, parents,
grandparents, children or a corporation or partnership in which you own more
than 50 percent of the stock or capital
interests.
If you pass all of these tests, and get
the purchase done by whatever deadline Congress decides as part of the final
stimulus package, you should be able to take $7,500 off your federal tax bottom
line, and possibly not worry about ever paying it back.
Meet the blogger:
My name is Ozzie Ramirez, I am a licensed REALTOR® and the founder of
AskOzzie.com. I work in real estate everyday. It is my profession, and
my livelihood, and I try my best to keep this site up to date with the
most current issues regarding the Pearland and Greater Houston Real
Estate Markets. Hopefully this web site will help to educate you and
help make your next real estate transaction a more positive one. Feel
free to contact our staff at Capital Trust Realty and AskOzzie.com if
you have unanswered questions, comments or if you would like to enlist
the help of a licensed real estate professional.
Posted on
Thursday, February 26, 2009
by Ozzie Ramirez