Let's start with the basics. The who, when, & what!
Who's Eligible?
1st-time Home-buyers only. This means that neither the purchaser nor the purchaser's spouse may have owned a principal residence in three years prior to the purchase.
When Is It Effective?
Purchases on or after April 9, 2008 until the feature terminates before July 1, 2009. Thus, it doesn't matter if you signed the offer to purchase in February as long as the closing(simply put the transfer of title) occurs on or after 4/9/08 you'd be eligible to take the credit.
What Does the Refund Do?
Refund reduces income tax liability for the year of the home purchase and will be claimed on the tax return for that year.
What Properties are Eligible?
Eligible property includes any single-family residence that will be used as a principal residnence. No condos or co-ops allowed.
How Much of a Credit Can I Get?
Ten percent of the cost of the home, not to exceed $7500.
Are There Income Limits?
You are eligible for the full amount of credit as long as your adjusted gross income is $75000 or less ($150000 if filing joint return). Their are credit phase outs above those caps and individual with incomes at $95000 for individuals and $170000 for those filing jointly will not be eligible for any tax credit.
Now let's get down to business and look at the fine print. The government is not simply giving you a $7500 tax break!
Do I Have To Pay This Credit Back?
Recapture! Yes, that's what I said. A portion of the credit - 6.67% - is to be repaid each year for 15 years. If you sell your home before you've reached 15 years the remainder of the credit will be recaptured upon the sale. This feature is why you may have heard this tax credit referred to as an interest free loan. Home-buyer pays 6.67% of whatever credit they receive($7500 or less) for the next 15 years with no interest. So, if you qualify for the full $7500 credit you will repay $502.50 each year for 15 years.
One caveat here is that if you sell your house before the 15 years and there isn't enough proceeds to pay back the loan the remainder will be forgiven. You will not owe the IRS if the proceeds fail to cover the full repayment amount.
What About The Alternative Minimum Tax?
The credit can be used against the AMT so that it will not push individual into the AMT.
Item of note:
There's no application. Just claim the credit on the appropriate tax form if you wish to take it.
Disclaimer: Nothing in this article shall constitute either legal or tax advice. Consult with your tax advisor regarding the use of this provision.
Shannon Luscher VP Elite Mortgage Solutions, Inc. Visit the Elite Mortgage Daily Blog for Mortgage News & Insights at http://elitemortgagesolutionsdailyblog.com/ Wisconsin borrowers can find more information about rates and products by visiting my comprehensive website - http://www.elitemortgagesolutions.com/
Article Source: http://EzineArticles.com/?expert=Shannon_Luscher
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