Take advantage of the First-Time Buyer Tax Credit:  A Reason to Buy Now

The homeownership tax credit that the Federal Government created earlier this year is a hard-won tool for buyers to jump off the fence and get into the home-buying market.

When you combine the tax credit with today's comtinuing low interest rates, large selection of for-sale inventory, and low home prices, many of the pieces are in place for indiviudals to purchase now.

How the Tax Credit Works

The First-Time Home Buyer Tax Credit was passed this year as part of the Housing and Economic Recovery Act (H.R. 3221) on July 30 and targets any individual or household that hasn't owned a home for at least three years.  Taxpayers can take the credit on thier 2008 tax return if they bought their house this year after April 9.

It's worth up to $7,500 and can be taken in a single tax year.  Authorization for the credit ends July 1, 2009, so if you want to buy in the first half of 2009 you can take the credit on your 2008 tax return.

The actual credit amount is set as a percentage of the home purchase amount.  That percentage amount is 10 percent, so you can get 10 percent of the home price credited against your tax liability, up to a maximum of $7,500.

Income limtes are $75,000 for individuals and $150,000 for households.  Individuals whose income exceeds the $75,000 limit but isn't more than $95,000 can still take the credit but on a reduced basis.  The same thing applies to households earning up to $170,000.

Any house is elegible as long as it's a primary resident and is in the United States.

Buyers have 15 years to Pay Back

To help keep the program cost effective for taxpayers, the federal government requires the tax credit to be paid back in small 6.67 percent increments over 15 years.  For that reason, some analysts have likened the credit to a 15-year, interest-free loan to help make home buying affordable.

There is one resstriction on the type of financing that you can use if you plan to take the credit.  That restriction is on tax-emempt mortgage financing.  That only applies if you are using below-market interest-rate financing froma public agency or nonprofit that's funding th eloan using proceeds from a tax-exempt mortgage revenue bond issue.  For most buyers, this won't be an issue.  It's mainly an issue for low-income buyers using special mortgage financing.

Please see www.IRS.gov  for further details and contact your accountant for further clarification.