Do You Understand the First-Time Homebuyer Credit?

There's a lot of confusion about the new first-time homebuyer tax credit. The fact that it's called a 'credit' is a good part of the confusion. It's not an outright credit since one must repay it. It's more like an interest-free loan. But the loan repayment term is generous - one has 15 years to repay the credit, which can be as high as $7,500.

The reason for the term 'credit' is that the money can be received as a credit against your federal income tax. That is, the $7,500 can be used to reduce your tax liability, or if you have none, or have already paid your taxes through withholding or estimated tax payments, then you will get the money sent to you.

Only homes purchased on or after April 9, 2008 and before July 1, 2009 are eligible for the credit. There are income limits for eligibility: up to $75,000 for single taxpayers and up to $150,000 for married couples. A first-time homebuyer is anyone who has not owned a home the previous three years, and the home you purchase to qualify for this credit must be used as a principal residence.

Any questions? Please feel free to call me at 734-439-8405.