A tax credit of 10% of the purchase price up to $7,500 is available for any principal residence home purchase between April 9, 2008 and June 30, 2009. You must actually settle (close escrow) within that period. The credit is repayable over 15 years (making it, in effect, an interest free loan).
Eligibility: Though it is called the “first-time homebuyer” credit, you are eligible if you (or your spouse) have not owned a home as a principal residence the past three years. Owning rental properties or vacation homes do not disqualify you. (Lucky you!)
Income Limits: Single or Head-of-Household – $75,000 modified adjusted gross income for the maximum credit; up to $95,000 for a partial credit. Married filing jointly – $150,000 for the maximum credit; up to $170,000 for a partial credit.
Tax Years: If you settle on your purchase in 2008, you must take the credit on your 2008 tax return. If you settle in 2009, you may use the credit on your 2008 or 2009 tax return. Obviously, if your income is expected to be over the limits in one year or the other, this provision helps.
Refundability: The tax credit is refundable. That means even if you don’t owe any taxes (you lucky dog), you can take the amount of the credit as a tax refund. Woohoo!
Payback: Normally, the credit will be repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you claim a $7,500 credit on your 2008 return, you will begin paying it back on your 2010 tax return. In this case, $500 will be due each year from 2010 to 2024.
If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale. If there is no gain, or if there is a loss on the sale, the remaining annual installments are forgiven.
If you die (ouch), any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount on the same terms. If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.
For more details on the tax credit, see http://www.federalhousingtaxcredit.com/. As always, if your situation is unusual, consult your tax adviser.