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Q: What is the first-time homebuyer tax credit?

A: Late this summer, the Housing and Economic Recovery Act of 2008 was approved and a new temporary tax credit for first-time homebuyers was introduced.

To take advantage of it, buyers must have purchased a new or existing home on or after April 9, 2008, and before July 1, 2009. The home must be a primary residence. For the purposes of the tax credit, the date of purchase is when closing occurs. The tax credit can be used on either 2008 or 2009 taxes.

There are several restrictions.

• Participants must be first-time homebuyers, meaning they have not owned a principal residence in the three-year period before the purchase.

• If married, both must qualify as a first-time homebuyer. Therefore, if one spouse has owned a home in the past three years, the couple does not qualify for the credit.

• Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit. The amount of tax credit phases out above those limits.

This is not a pre-funded credit. The benefit comes from limits on tax liability when federal income tax returns are filed. If qualified, first-time homebuyers can receive up to 10 percent of the cost of the home, not to exceed $7, 500. As an example, if you were set to receive a tax refund of $500, you would now receive $8,000. If you owed $1,000 in taxes, you would receive a refund of $6,500. No special applications or forms are required. Qualified buyers would just claim the credit on their tax returns.

Although called a tax credit, it is not a gift. This is actually a no-interest loan that must be repaid. Homebuyers must pay back a portion (6.67 percent of the full amount of the credit) each year for 15 years as an additional tax on their return. For instance, the payment could be taken from any expected refund. The amount to be repaid would not exceed $500 a year. But if the home is sold before the money is repaid, the balance is due at that time.

The purpose in this tax credit is to provide homebuyers with additional cash, translating into a stimulus for the economy and promoting home sales. But it is available for only a limited time. You can find out more about the program by consulting with a lender or reviewing information on the U.S. Department of Housing and Urban Development’s Web site at www.hud.gov.

House Helper answers are provided by area industry professionals and are the opinions of our experts. Triad Homes does not make any representations as to opinions and facts.

If you have a question that can be answered by a Realtor, remodeler, builder or mortgage loan adviser, please send it to Heather L. Modlin at hmodlin@news-record.com or by fax to 373-5956.

About our contributor
Melanie Troutman is a mortgage adviser with Coldwell Banker Mortgage, serving the Triad. She can be reached at 748-5357 or by e-mail at melanie.troutman@mortgagefamily.com. Online visit http://melanietroutman.coldwellbankermortgage.com.