$7500 First Time Homebuyer Credit

Not many people are aware of the $7500 tax credit that that IRS is offering toward the purchase of a new home. The first-time homebuyer is a refundable credit of up to $7,500 that applies to home purchases after April 8, 2008 and before July 1, 2009. This means that the credit will be paid out to eligible home buyers, even if they owe no tax or the credit is more that the tax owed on your return.

This credit works like an interest free loan. If you qualify, you will receive the $7500 as part of your 2008 tax return. The repayment begins in the second year after you receive the money. So you would begin paying it back starting 2010. The repayment period is 15 years and the payment comes out of your yearly tax return. So if you receive the full $7500 you would pay back $500 out of your tax return for the next 15 years.

To qualify for the credit you must meet the following requirements:

• You must purchase your home after April 8, 2008 and before July 1, 2009.
• The home must be your main home, the one that you live in most of the time
• To qualify as a home, it must include sleeping, cooking, and toilet facilities. A home can be a house, condominium, cooperative, mobile home, house trailer, boat, or similar property
• Your adjusted gross income with a few changes (also known as your modified adjusted gross income) must be less than $95,000 if filing single or less than $170,000 if married filing jointly. You qualify for only part of the credit if your modified adjusted gross income is between $75,000 and $95,000 if filing single (or between $150,000 and $170,000 if filing jointly)

You can’t claim this credit if you:

• Owned a main home at any time in the prior three years preceding your purchase
• Purchased this home from a family member, including your grandparents, parents, spouse, children, or grandchildren.
• Stopped using your home as your main home.
• Sold your main home before the end of the year.
• Are a nonresident alien.
• If you ever took or were eligible to take the District of Columbia first-time homebuyer credit for any taxable year.
• You financed your home from any source that uses tax-exempt mortgage revenue bonds.

I don’t qualify for the credit, however I wanted to see how this worked in TurboTax. I answered the questions like I was a first time homebuyer and sure enough my refund increased by $7500. Not a bad way to receive an interest free loan that you can payback over time. And the fact that the repayment is taken out of your tax returns makes this very hassle free.

I strongly recommend that if you bought a home since April 8 and you fit the qualifications you should definetly jump on this one.

See IRS Publication 530 for more detail.

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