Many of you by now have heard of the recent Housing Bill (H.R. 3221) that was signed by President Bush on July 30th, and goes into effect on October 1st, which made a $7,500 Tax Credit available to "First Time Home Buyer" who purchase a home between April 8, 2008 to July 1, 2009. A first-time homebuyer is defined as an individual who has not had an ownership interest in a principal residence in the previous three years. There is an income limit for individuals with adjusted gross income of no more than $75,000, and $150,000 on a joint return. Individuals with incomes greater than the $75,000 or $150,000, can still receive a partial Tax Credit if their individual income is below $95,000 and below $170,000 a joint return. This Tax Credit is also only available for a principle residence and is not available for investment properties, and the property must be located within the United States. Properties outside the United States are not eligible.
The Tax Credit works like this, if the "First Time Home Buyer" was going to receive a $1,000 refund when they file their Federal Tax Return in 2009, they will now be eligible for an additional $7,500 if they choose to receive it (it is not mandatory to receive the new tax credit, the First Time Home Buyer can decline to receive it). This means that their tax return will be $8,500 instead of $1,000. Likewise if they were going to have to pay $1,000, they would now receive $6,500.
This new Tax Credit is not a $7,500 gift, because it must be paid back within 15 years, however, it is interest free. The statute specifies that the repayment amount will be 6.67% of the credit amount each year. Thus, a buyer who qualifies for the full $7500 credit will repay a minimum of $502.50 each year starting with their 2010 tax return (which will be filed in 2011). If the purchaser sells the house before he/she has totally paid back the Tax Credit, the remainder will be due at the Closing and reduced from the proceeds of the sale. For example, if an individual still owes $3,000, and makes $30,000 on the sale of the house, the $30,000 profit will be reduced to $27,000 and $3,000 will be sent to the IRS.
There is an exception. "First Time Home Buyers" who meet the income requirements for this new Tax Credit, but who have a mortgage that is funded by "Tax Free Bonds", like the Connecticut Housing Finance Authority (CHFA), here in Connecticut, DO NOT qualify for the new Tax Credit. So a "First Time Home Buyer" needs to take this into consideration. What is more of a benefit to them, the low interest rate that CHFA offers, or the opportunity to receive a Tax Credit of $7,500.
Some of the initial advantages that I see that a "First Time Home Buyer" can gain from this new Tax Credit are:
- Mom and Dad might want to help with the purchase of the house, but don't want to outright give them the money. They now could quickly give Mom and Dad back up to $7,500 when they receive their tax return.
- Downpayment tends to be a big problem for "First Time Home Buyers", and most do not like taking money from their 401K's to come up with the money. Well now they could borrow the money from their 401K, knowing that they could quickly pay up to $7,500 within a few months.
- Houses sometimes need things done that a "First Time Home Buyer" might not have the money to do. Once again within a few months they will have up to $7,500 available to do some of those things.
I see this new Tax Credit as one of the few positives that have come out of the new Housing Bill, and one that I will be talking about with the Buyers, and Realtors that I work with here in Middlesex County. The other major positive that I feel the new Housing Bill has done, is the elimination of the DPA's such as Nehemiah and AmeriDream. But that is a topic for another day. By the way this does not eliminate the DPA programs such as the one provided by CHFA here in Connecticut.
I hope that this helps to shed some light on this new provision to those who have taken the time to read this blog. Please feel free to contact me if you have any questions on this program that I have not addressed, or if you should need clarification on anything I stated.
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Info about the author:
George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
Oh my god...the blog has risen once again! So George ...do you think this is a good benefit for first time buyers? Also off subject...whats the real truth about when a homeowner sells short..did that law ever take effect where they don't have to pay income taxes on the gain? I keep hearing they did and also they didn't. what is the real truth? I have clients that have questioned this but I'm not an accountant.
George - I have been waiting for this post, you told me weeks ago you were writing it. Business must be good. Wish you had check this post for re-blogging, for this is great information and I would re-blog it.
Nicely spelled out offering great suggestions for first time buyers to get them into a home.
Okay - stand correct. Don't know if active rain is having a bug problem or what. Last time I looked at your post the little re-blog thingy wasnt' there.
Thanks for the information.I will bookmark this and read later.
Neal, I did not mean to give you a heart attack by seeing me blog again ......... LOL
Yes I do think that it is a good deal for First Time Home Buyers for some of the reasons that I included towards the end of the post.. As far as the income tax question, I don't know. But I am sure that a quick call to your accountant would provide you with the answer.
Sandra, yes I have been a little slow in writing this as well as some other things I want to blog about. I did make it available for Re-Blogging, in fact someone Re-Blogged it seconds after I posted it.
Dan thank you. The First Time Homebuyer market continues to be active for me, and money for downpayment and closing costs are usually an issue.
Sandra, I guess that was you with the "stand corrected" comment. I been having a little problem with ActiveRain today also, in fact I had a little problem posting this today.
Gita, thank you for taking the time to stop by.
George - Yes, that was me : ) Having some major problems with a/r tonight.
Instead of calling this a tax credit, it should be called an interest free loan. There is no free lunch and Realtors need to be careful when touting this new "tax credit".
Chuck, interest free loan is a more accurate description of it, the the Bill calls it a Tax Credit, and the way it is accounted for on the tax return like a Tax Credit, and received with their Tax Refund. So while in reality it is and interest free loan, the term that has been adopted for it, starting with the Bill itself is Tax Credit.
George,
This tax credit can really help the first-time buyer. On the other hand, the way it's set up is rather complicated. It certainly looks like CPAs are also benefiting from this come tax time because the homeowner will now likely need his help to figure it all out.
Esko, good point. It will be interesting how it is actually done, and I am sure there will be lots of questions come next tax season.
How does an unmarried couple that buys a home split the credit?
Whooooaaaaaaahhh... George is still alive!!!! (just kidding...you're on mine every day without fail...I thank you for that) :)
Now, the way I see it is that our home prices are so high that would barely cover the closing costs on a condo....of course it would help even if they got a credit from the seller to put some additional in to buy points ...lower interest rate...lower monthly payment. At least it's a positive for many and will help for sure!
I like seeing you pop up on my subscribed list once in awhile :) Now...back to bra burning lol!
George - so good to have a post from you. I ALWAYS appreciate your visits and comments, but even more so your words of wisdom.
This is important information for those that qualify - thanks for the clear explanation. Unfortunately, like in Sally's area, this will not make a huge difference here with the high prices we have, but there are some homes that could work.
So, don't make yourself so scarce.
Jeff
Sally, this is not the answer in high price areas, but in states where prices are not as high it offers a little assitance. I have a feeling I am not going to live the bra comment down .......... LOL
Jeff, thank you for the kind words. Like I commented to Sally this will not help all, but even if it helps a few it will accomplish more than some of the other efforts that have come out of Washington lately. I always count on you to keep me informed of what is going on in my wife's home state :)
Laura, good question and I am not sure of the answer. What I do know is that the maximum credit for anyone property will not exceed $7,500, no matter how many First Time Home Buyers were involved in the pruchase.
George:
Thanks so much for sharing this with us in detail and adding the ideas of how it could benefit!
Great post. Thank you for the information. It definitely clarified a lot of things
George -- Nicely done! This is clear and concise. I had a couple of lenders send some information, but it was either difficult to understand or too long. I will pass this on to some of my first time home buyers so they can also comprehend the benefits of this new credit.
George. The government never gives you something for free.. without taking something else away.
Fran, glad you found the examples helpful.
Brain, thank you
Joan, I can't do complicated so I try to write in a way that even I can understand :)
Valerie, yes this is not completely free, but anytime you can use someone else's money interest free, then it really has not cost you anything in the long run, you are simply returning what you have had free use of :)
George - This will help with the down payment issue that First Time Buyers face. I also like the point you made that with the credit mom and dad could get paid back sooner than later.
Jennifer, if we can all share ways in how we see this can be used, then we can all be better off in representing our clients and helping them get into a house.
I should have known you would have a terrific understandable explanation of this. I'm printing it out for my clients ty!
And I am wondering, if the loan goes through, is it part of the policy that the mortgage lender pays the 7500 dollars back in 15 years :-)
Carol, now that would be a real deal, if you could get the Lender to pay off the $7,500 instead of the Borrower, but somehow I don't think that is likely to happen ......... LOL
Thanks for the post. It does help clarify what the Tax Credit is all about.
John, thank you for stopping by. It is always nice hearing from other Loan Officers.
I think its a wonderful thing for those that can afford a house.
David, the rates seem to be coming down again, and around here there are still some very affordable houses.
George- This post is bookedmarked. You do such a good job of explaining things. Were you a teacher? Anyway, I learned quite a bit from your post because I had not take the time to read about the bill anywhere else and had did not have the details of the what happens with the cash. It does seem like a loan, but a timely and inexpensive one. This also, is another light at the end of the tunnel. All we have to do now is find folk who can qualify.
Eloise, I guess we could call this a loan that is received the same way as a tax credit, since it is received through Federal Tax Returns. In any case it is another tool available to first time home buyers, and we need all the help we can get these days.
Great post. Thanks for sharing with us in detail.
Daisy thank you for stopping by this Post as well.
George: It is good to see you blogging again!! Thank you for the information
I agree, it should be called "interest free loan" instead of tax credit, but no doubt, it is attractive to first time home buyers and should help stimulate housing market.
Dianne, thank you.
Brad & Angela, whatever one chooses to call it, it is money that can be used interest free for 15 years, and that does not happen often, except from mom and dad :)
Thanks George for making this into simple terms. I'm going to bookmark it, so next time I'm trying to explain it, I'll have a better idea.
Jen I am glad that you found this is useful for you.
My boyfriend and I are purchasing a house together. I qualify as a first time home buyer (I have not owned a house in 12 years) also, I will most likely fall below the $75K income limit. However, my boyfriend currently owns a property and will be selling this when we buy the house.
Since we are not married and will be filing seperate returns, can I benefit from this $7,500.00 tax credit?