Thursday, September 25, 2008

Tax Credit for First Time Home Buyers

If a first-time homebuyer purchases a home before the end of 2008, he or she gets a $7,500 tax credit in 2009 when they file their federal income taxes, but it must be paid back over time. Here’s how it works: The first-time homebuyer credit is similar to a 15-year interest-free loan to be repaid in 15 equal annual installments beginning with the second tax year after the credit is claimed as an additional tax on the taxpayer’s income tax return for that year. For example, if a buyer claims a $7,500 first-time homebuyer credit on his 2008 return, he’ll start paying it back on his 2010 tax return with $500 due each year from 2010 to 2024.

Some exceptions apply, however, including:
• If the taxpayer dies, remaining annual installments are not due. If a spouse dies, the remaining spouse must repay only his or her half.
• If the home stops being a primary residence, all remaining annual installments become due for taxes paid on the year that happens. There are special rules for involuntary conversions.
• If the home is sold, all remaining annual installments become due on the return for the year of sale. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated.
• If ownership is transferred to a spouse or ex-spouse following divorce, the new owner becomes responsible for all subsequent installment payments.For more information on the tax credit, visit the IRS Web site at: http://www.irs.gov/newsroom/article/0,,id=186831,00.html