How Does the $7,500 Home Buyer Tax Credit Work?
Qualified home buyers can receive a "tax credit" of 10% of the purchase price, with a maximum credit amount of $7,500. This means if you bought a home for $75,000 or more, you can deduct the full $7,500 tax credit from the amount owed to the I.R.S. If you usually get a refund on your taxes -- and you qualify for the maximum tax credit -- you can add another $7,500 to that refund for 2008.
Qualifications for the $7,500 Home Buyer Tax Credit
Only first-time home buyers are eligible. This is defined as not owning a home over the past 3 years. Here are other qualifications:
- The home must be your principal residence.
- Only homes purchased on or after April 9, 2008 and before January 1, 2009 qualify for the tax credit.
- Limited to individuals with adjusted gross incomes of $75,000 as a single person or $150,000 filing jointly. There is a phase-out for single incomes between $75,000 and $95,000, and for couples filing jointly with incomes between $150,000 and $170,000.
More About the $7,500 Home Buyer Tax Credit
- The $7,500 home buyer tax credit is not really a tax credit in the true sense of the word because it has to be repaid. It's actually an interest-free loan from the government, to be repaid at $500 a year for 15 years. Payments begin in 2010.
- Unlike the $8,000 home buyer tax credit for 2009, you can not use the credit if you financed your home purchase with state or local bond funding.
- However, if you sell that home within the 15 years of ownership, the entire remaining balance of the tax credit is due and payable.
The Difference Between a Tax Credit and a Tax Deduction
A tax credit is applied directly to the taxes owed. If you owe $8,500 in taxes and apply the $7,500 tax credit, your tax bill is reduced to $1,000. If you have already paid $9,000 through payroll deductions or estimated tax payments, you will get a refund of $8,000.
A tax deduction is a reduction against earned income. If you made $100,000, a $7,500 tax deduction would simply reduce that income for tax purposes to $92,500, and you would pay taxes on that lower income.
See Page 1 for Details on the 2009 $8,000 Home Buyer Tax Credit
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.
