On July 30, 2008, President Bush signed into law H.R. 3221, the "Housing and Economic Recovery Act of 2008," a sweeping $300 Billion rescue plan to help struggling homeowners avoid foreclosure, and to boost confidence in the sluggish housing market. This 780+ page bill contains many complex provisions. It seems the most talked about item is the tax credit for First Time Home Buyers. Below is a breakdown of just how it works... Who is Eligible
The $7,500 tax credit is available for first-time home buyers only.
Income Limit
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Home buyers who file as single or head-of-household taxpayers can claim the full $7,500 credit if their modified adjusted gross income (MAGI) is less than $75,000.
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For married couples filing a joint return, the income limit doubles to $150,000.
- Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit.
- Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit.
- The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with an MAGI that exceeds $170,000.
Effective Dates for the Tax Credit
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First-time home buyers would receive a $7,500 tax credit for the purchase of any home on or after April 9, 2008 and before July 1, 2009. To qualify, you must actually close on the sale of the home during this period.
Tax Credit is Refundable
- A refundable credit means that if you pay less than $7,500 in federal income taxes, then the government will write you a check for the difference.
- For example, if you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $2,500 payment from the government.
- If you are due to receive a $1,000 tax refund from the government, your refund would grow to $8,500 ($1,000 plus $7,500 from the home buyer tax credit).
- Buyers can take the tax credit in their 2008 or 2009 tax return.
- If you purchased the home in 2008, the tax credit is taken on your 2008 tax return. If you buy in 2009, you have the option of taking the credit on your 2008 or 2009 tax returns.
Types of Homes that Qualify for the Tax Credit
- All homes, whether single-family, townhomes or condominium apartments will qualify, provided that the home will be used as a principal residence and the buyer has not owned a home in the prior three years. This also includes newly-constructed homes.
Payback Provisions
- The tax credit essentially serves as an interest-free loan to be repaid over 15 years.
- For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. However, the buyer doesn't have to start repaying the credit until two years after the tax year in which the credit is claimed.
- If the home owner sold the home, then the remaining credit would be due from the profit of the home sale.
- If there was insufficient profit, then the remaining credit payback would be forgiven.
For more details on the tax credit, go to
Welcome to the Active Rain community. You have chosen a great site with tons of information you can learn from. Have fun with it and hope to see more of your blogs soon!
I did not know the part about first time meaning not having owned a home in the last three years. This could be big with military people
From my experience, most state specific FTHB programs also define a first time home buyer as someone that has not owned a home in the past 3 years. They typically verify this by reviewing the past 3 years tax returns to verify that no property taxes or mortgage interest has been deducted. The three year rule can also help those who decided to rent or live with family following a divorce.
I really don't see this helping our situation much, if at all. When you get into the details it's complicated and involves homeowners paying back difference at sale, paying back the tax credit, blah, blah. I'm not sure that anyone in real trouble who did 100% financing will see the upside - at least in our market, most are very willing to just walk away rather than "work" at trying to salvage their home and credit. I hope it works or at least helps us and the economy but from financial news I saw today it seems we could be looking at seeing many more foreclosures between now and next spring. They are reporting the 2007 mortgage loan foreclosure rate is "considerably" higher than for loans made in 2006. Hopefully, by next May, we'll all be breathing a sigh of relief that it is over, or at the very least, starting to show consistent signs of improvement. We can only hope and pray for us and the country as a whole. I hear people say that they think we will see real signs of a turnaround after the election - that would be fantastic to have that occur right before the holidays.
How is this going to help the home buyer now, when they are ready to buy a home and need help with down payment assistance? Also, if this is ultimately just a loan, why would anyone want this fake tax return. Wouldn't this just provide another avenue for people to borrow money they may not be able to afford to pay back. What happens if you default on this "tax return"?
I would much rather keep downpayment assistance programs as they have really helped the majority of my clients this year obtain home ownership.
Though down payment assistance would help more people get into houses, the reality is that someone without some "skin in the game" is more likely to walk away. My take is that the government is trying to turn the market around and boost consumer confidence. The reality is that each program they introduce is not as beneficial as it appears on the cover.
Investors are only going to be willing to buy into mortgage backed securities that they believe will perform well. In other words, buyers will have to prove themselves worthy of borrowing the money they seek.
Thanks for outlining this tax credit, it was very useful. All the best!
Karl,
Welcome to Active Rain! Congrats on your first blog! You'll find this a great place to learn, share ides, and most important, build your business! If you ever have a question on running a VA Loan, or an FHA Loan feel free to contact me.
Ron Brown
VA & FHA Loan Specialist
First Mortgage Company of Washington
Puyallup, WA
I wanted to personally welcome you to active rain! This is a great community for learning, as well as sharing. Check out some blogs, join some groups, and enjoy! Perhaps we will learn something from one another!
Hello Karl, Welcome to Activerain! Visit my blog if you want to learn more about commercial loans. Keep posting and take full advatage of this site.
Welcome, Welcome, Welcome! You've joined a great place to network, make and meet new friends and discuss lots of interesting topics. I see you are already off to a great start! Stop by if you get a chance. I would love to hear your feedback on our thoughts! Well, have great time and ENJOY. Look forward to seeing you around.
Hi Karl, Welcome to AR, Be a Blogholic and start writing your own blog soon on AR. All the best for your RE business. This is the right place for customers, friends, realtionships etc.
Best - Sash
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