Tax Incentives for First-Time Home Buyers – Reminder

Tax Incentives for First-Time Home Buyers

The economic challenges of 2008/2009 have resulted in Congress giving incentives for those people who’d like to purchase their first home, but who may need some finan­cial assistance. To that end, in 2008, Congress passed an incentive plan which included a new credit.

The new home buyer’s credit of 2008 functioned like an interest-free loan. This measure provided a maximum credit of up to $7,500.00 ($3,750.00 for married filing separately), or 10 percent of the home purchase price for eligible first-time home buyers who purchased residences after April 8, 2008. Taxpayers can claim the credit for 2008 purchases by filing the new Form 5405 with their 2008 tax returns.

The home must be the taxpayer’s main residence, must be located in the United States, and the taxpayer’s adjusted gross income must be below $95,000 ($170,000 for married filing jointly). It is important that taxpayers who bought a home in 2008 and who take advantage of this new credit plan understand that the credit is an interest-free loan that must be paid back over 15 years in 15 equal installment payments beginning the second year after the credit is claimed.

With the new administration, changes have been made to the new stimulus provi­sion for a refundable new home buyer’s credit from the measure of 2008.

Now, the repayment obligation is eliminated for taxpayers who purchased homes after January 1, 2009. The maximum value of the credit has increased to $8,000.00 The new measure removes the prohibition on financing by mortgage revenue bonds, and ex­tends the availability of the credit for homes purchased before December 1st, 2009. The credit would only have to be paid back if, within 36 months of the purchase, the home ceases to be the main residence.

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