WASHINGTON – Aug. 1, 2008 – A provision of the recently-passed federal housing recovery bill gives first-time buyers an interest-free loan of up to $7,500 in the form of an income tax credit.
The credit equals 10 percent of a home’s cost up to $7,500, and applies to any single-family residence (including condos and co-ops) to be used as a buyer’s principal residence.
First-time homebuyers, defined as those who have not owned a home for at least three years, will claim the tax credit the first year they file federal taxes and receive the money as a reduction of their federal tax liability. The money must be repaid at the rate of 6.67 percent of the total credit each year for 15 years, essentially making it an interest-free loan. If a home is sold before the 15-year pay-off, the balance of the credit is recaptured at resale.
The credit was included in the new law as a way to entice first-time buyers to get off the fence and commit to a purchase.
Other provisions:
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Income limits: Full credit goes to individuals making $75,000 per year or less ($150,000 for couples). The credit amount phases out for higher incomes.
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Effective dates: The new law is retroactive back to April 9, 2008. It terminates on June 30, 2009.
Source: FAR
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