Details on Tax credit for 1st time home-buyers

Last week President Bush signed the new housing bill into law.  One of the provisions which was included in this bill to help the ailing housing industry is a tax credit for first time home-buyers.  I wanted to take a quick moment to highlight the details for those of you who will qualify for this credit:

*Who qualifies for this credit? Anyone who buys a home from April 9, 2008-June 30, 2009 who is buying their first home or who had not owned a new home in the previous 3 years from the date of purchase.

*What are the terms of the credit? The credit is actually an interest-free loan worth up to $7,500 for couples filing jointly or $3,750 for those who file individually.  A tax credit is different from a tax deduction in that it actaully reduces your tax liability dollar for dollar (whereas a tax deduction reduces your taxable income which means your tax liability is only reduced by the amount of the deduction times your marginal tax rate).  As an example, if you were expecting a tax refund for $2,500 you’d actually get $10,000 ($7,500 more) with the tax credit.

However, you don’t get to keep this tax credit money for ever.  The IRS will then collect $500 per year ($250 for individuals) for 15 years from your tax refund (or added to your tax bill) to repay the credit.  Although this is kind of drag this is still a great deal.

*How much will this help? It’s difficult to say for sure how much of an impact this will have.  However, if I were a first time home-buyer and didn’t have a down-payment saved up one possibility for me would be for me to borrow $7,500 from a family member or close friend to use towards a down payment (FHA loans only require 3% down so I could buy a $250,000 home and put 3% down with this tax credit) and then pay back the loan when my tax refund became available.

I referenced this article as well as other resources for my information.  See also- &

The views and opinions expressed in this site are those of the author(s) and do not necessarily reflect the official policy or position of Cherry Creek Mortgage Co., Inc. This is for informational purposes only. This is not a commitment to lend.