First-time Home Buyer Tax Credit

With having had the opportunity to help a great deal of First-time homebuyers into a new home this year, I figured it was my responsibility to research the tax credit and see if my clients could benefit from it. What I found was that even with all the negative hipe surrounding this tax credit... beggers can't be choosers. The fact is that this is an interest free loan. But now-a-days, what is negative about that? Of course the tax credit would be more attractive if you didn't have to repay it, but it's all in all a great perk when you purchase.

In summation the tax credit applies to first-time buyer home purchases of a principal residence between April 9, 2008 and July 1, 2009. So, when a buyer files their income taxes for the year the home was purchased, they may be able to subtract $7500 from the amount of federal income tax liability, which will either increase their tax refund or reduce the amount of tax still owed.

The total credit is equal to 10% of the purchase price up to $7500. There is also a income limit where as a single person your adjusted gross income must be $75,000 or less and individuals who file jointly may have an income of no more than $150,000.

However, this tax credit has to be paid back. Repayment begins 2 years after the credit is claimed and must be repaid within 15 years. That's roughly around $500 per year without interest. That's right, interest free! Not so bad, right?

More often than not first time buyers close their new home purchase having exhausted most if not all of their savings. As they are confronted with a mortgag payment that exceeds what their accustomed to paying in rent. They may have a home to furnish, possible redecorating costs, and not to mention homes that require repairs or improvements (roof, flooring, windows, etc). The tax credit would help alleviate the burden of having to put it on a credit card and pay interest rates of 15%+

Other savings include using the tax credit to pay down your mortgage. $7500 will not reduce your monthly payment but the real benefit is: the outstanding balance reduced by $7500 and each future mortgage payment results in savings in mortgage interest and increased mortgage reduction. With each monthly payment more money goes to reducing the mortgage balance and less is applied in interest. The benefit over the term of the mortgage in interest savings and mortgage reduction will be quite surprising.

So whether your using the credit towards repairs or paying down your mortgage, this tax credit is another great reason why it's such a great time to buy. For more information on the tax credit please read the links below for other frequently asked questions!