FIRST TIME HOME BUYER TAX CREDIT FOR 2008

Note: This tax credit is available for first time home buyers who purchased their home between 4/8/08 and 12/31/08. Because this tax credit is a loan, taxpayers who purchased their home in 2009, would benefit more from the American Recovery and Reinvestment Act of 2009 (Obama’s Stimulus Package).

In 2008, a first time home buyer credit was enacted for the 2008 and 2009 tax year. The credit entitles a first time home buy to a maximum refundable tax credit of $7500. This credit is an interest free loan. Refundable means that you will get the money even if you owe no taxes when you file your 2008 or 2009 tax return. The requirements for this credit are as follows:

You must be a first time home buyer:

individual (and spouse) with no ownership of a principal residence in the three-year period ending on the purchase date of your new home.

The residence must have been purchased after 4/8/2008 and before 7/1/2009.

The principal residence must be located in the United States.

There are a few exceptions which would NOT allow you to take this credit:

Your modified adjusted gross income exceeds $95,000 ($170,000 if married filing jointly)

The credit starts to phase out with incomes of $75,000 if single ( $150,000 MFJ)

You (or spouse) took the D.C. first time home buyer credit in any year.

The residence is financed by proceeds of a tax-exempt mortgage revenue bond.

The taxpayer is a non-resident.

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You move out of the home before the close of the year you bought the home.

The taxpayer sells the home before the close of the year.

The taxpayer acquires the home by gift, inheritance, or from a related person (or business of which the taxpayer is more than 50% owner).

Repayment of Credit

Because this tax credit is a loan, you must repay the loan in equal installments over 15 years. The repayment will be made in the form of additional taxes on your return equal to $500 (if you got the full $7500 credit).

The additional taxes would start the second year after you claimed the credit. For example, if you purchased your home in 2008 and took the credit on your 2008 tax return, your $500 payment would start with your 2010 tax return. If you took the credit in 2009, they repayment would begin in 2011.

Acceleration of recapture

If a taxpayer disposes of the home (or ceases using it as a principal residence) before the end of the 15th year, the remaining credit repayment amount is added to the income tax liability for the year of sale or cessation of use.

Exceptions to recapture

Where the principal residence was sold to an unrelated person before the 15 years ends, the increase additional tax you must payback is limited to the amount of gain (if any) on such sale.

In the case of an involuntary conversion, recapture is not accelerated if a new principal residence is acquired within a 2-year period.

No amount is recaptured after the death of the taxpayer.