IRS offers New Tax Credit for First Time Home Buyers for Tax Year 2008!
The IRS has stated that a first time home buyer would receive a tax credit of up to $7,500 for purchasing a principal residence after April 8, 2008 and but before July 1, 2009.
However, in order to qualify for this tax credit, the Buyers must not have owned a principle residence in the U.S. in the previous three years. This tax credit however, “phases out between $150,000 and $170,000 of AGI for married couples but $75-95,000 for single filers.”
Also, this tax credit is refundable, but only to the extent it exceeds the buyer’s regular tax liability, but it cannot be used offset the AMT liability. Eligible taxpayers in 2009 can make an election to take the credit on their 2008 returns.
However, this tax credit is "recaptured ratably over 15 years without any interest, starting 2 years after the year the credit is claimed." For instance, a first-time home buyer who claims a $7,500 tax credit for a purchase in 2008 must pay an extra $500 of income tax in 2010 and in future years.
If the residence is sold by the homeowner before the credit is fully repaid, the seller will be taxed that year on the lesser of the gain from the sale if sold to an unrelated party, or the unrecaptured balance of the credit.
Last edited by TaxGuru : 08-08-2008 at 12:00 PM.