Tehachapi News

First-Time Home Buyer Tax Credit by Tammy Engel

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As part of the Housing and Economic Relief Act of 2008, those buying a home between April 9, 2008 and July 1, 2009 are eligible to file for a Home Buyer Tax Credit.  You know by now there is no such thing as a “free lunch”, so here is the scoop on what this means for you.

First, realize this is a credit for which you apply by filing your income taxes, so this is not a purchase-down-payment tool.  In practical terms, if you buy this year, you can apply for the credit in 2009 when you do your 2008 tax returns.  So if you buy in 2009, you won't be applying until 2010 when you file your 2009 tax returns.

To be eligible, you must be purchasing your own residence and cannot have owned property for the past three years. The credit does not work for vacation homes, investment property, or units. 

Income limits apply: Single filers (or head of household) are eligible if their income is no more than $75,000. Joint filers may have no more than $150,000 in income to get the full credit. Single incomes between $75,001 and $94,999 — or joint incomes between $150,001 and $169,999 — are eligible for a partial tax credit. Incomes greater than $95,000 (single) or $170,000 (joint) are not eligible for this tax credit.

How much will you get? The tax credit is 10 percent of the purchase price, not to exceed $7500. And what exactly does the tax credit do for you? It reduces income tax liability for the year of purchase, as claimed on that year's tax return. As an example, if your filed tax liability was $5,000, then after the tax credit is applied you would receive a total refund of $2,500. The refundable amount is the difference between the $7,500 tax credit and the amount of your tax liability. Or, if your actual tax refund was $2,000, then after the tax credit is applied you would receive a total refund of $9,500. Be sure to consult your tax professional for the exact math in your situation.

Here's the part that isn't so obvious: You get to repay this tax credit over 15 years in each subsequent year's income tax filing.  If a homebuyer claims the $7,500 credit, repayment begins annually at approximately $500 a year. If the home is sold before 15 years, then remainder of credit is due in the year of sale. If the home is turned into a rental or investment property, the repayment balance is due in that year. If the homeowner dies, their heirs do not have to repay the remaining balance.

Have your team of financial professionals help you make the most of this first-time buyer benefit.

Tammy Engel is the only loan originator in Kern County authorized to display the Lending Integrity Seal of Approval. Contact her at 661/822-REAL with your home loan needs.