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$7500 First Time Homebuyer Tax Credit
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Update 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal. The credit is set to expire November 30th unless it is extended (which is currently being discussed).
Senate Republicans added a provision that would make the credit a $15,000 tax credit for all home-buyers, not just first time home-buyers. It would also be a true credit, not a “credit” you have to pay back over 15 years.
One of the big pieces of the housing rescue bill, passed and signed into law in July, was a $7,500 “tax credit” for first time homebuyers. While experts aren’t sure whether it’s “going to work,” these types of tax credits have been used in the past so they do have some history.
There is one aspect of this bill that is surprising and it has to do with one of the qualification rules. You can own a vacation home or a rental property and still qualify for this tax credit. I don’t know if it’s an oversight because of the strict determination of “primary residence” or if it was an intended rule. I don’t think individuals who own rental property or vacation homes necessarily need assistance on buying a primary residence.
First Time Homebuyer Tax Credit Rules
To qualify, you must satisfy these conditions:
- The home much be purchased as a primary residence.
- You must not have owned a primary residence in the last three years. For couples, both individuals must not have owned a primary residence in the last three years. Vacation homes and rental properties don’t affect this (you aren’t DQ’d if you have a vacation home or rental property).
- Must not be a non-resident alien as defined by the IRS in Publication 519.
- Individuals must have a modified adjusted gross income of less than $75,000 annually and couples MAGI of less than $150,000 to qualify for the full amount.
- The phaseout range begins at $75,000 and ends at $95,000 for individuals, $150,000 and $170,000 respectively for couples.
- The home must be closed between April 9th, 2008 and July 1st, 2009.
- No mention of a credit score or history requirement, but knowing that will help when it comes to getting a mortgage. I recommend checking out myFICO.com, a service of Fair Isaac, the people who invented the FICO credit score.
How the “tax credit” works:
- The tax credit is 10% of the home’s sale price with a maximum of $7500.
- You can claim the credit on taxes filed in 2008 or 2009.
- It’s a credit and not a deduction (difference between tax credit and tax deduction).
- “Tax credit” is a misnomer because it’s really a zero percent loan with some qualifications.
Tax Credit Loan Repayment Terms
The tax credit isn’t really a tax credit, it’s really just a tax free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years. When you sell your home, any profits will go first into paying off that loan. If you sell at a loss, the difference will be forgiven… meaning you will not owe any money on the loan (though it should be recorded as income as is typical with most loan forgiveness agreements, so you will owe taxes on it).
Should You Do It?
I would, why wouldn’t you take an interest free loan? 
(Photo: orvaratli)
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we closed on our home on 2/23/09. Are we eligible for a tax credit. We sold our previous home in 08/07
no u cannot have owned a home for the previous three years
we bought our home on 8/31/07. Are we eligible for a tax credit? We did not have any home before.
no the tax credit didnt start till may 08
I purchased my home in Oct. 2008 and received the tax credit when I filed my 2008 taxes. I’m think about selling my home this year (2010). Will I have to pay the credit back in full when I do my 2010 taxes? If so, will it be a lump sum or can I pay it back over a certain period of time?
no u have to pay it all back the year u sell the home
If I decided to take the $7500.00 credit (needs to be paid back) at the end of every year can I choose to pay back more instead of waiting a full 15 years. Can I choose to pay it off in 5 years?
DO YOU GET THE MONEY WHEN YOU BUY THE HOUSE ? Or do you wait till the end of the year and get it when you file your income Tax Forms. Do i also understand that this money has to be paid back. I have been led to believe that it has also been moved to a later date and will go thru’ July 2010 is this correct. Thankyou!!!
why does someone who claimed the tax credit for buying a house in 2008 have to pay that money back and someone who bought the house in 2009 and got the credit don’t need to pay the money back?.
I totally agree with you, for I am in the same situtation.
what about the “long time resident credit” ? I bought my home 2005 and it has been my primary home since. Do I qualify for the 6500 credit and if so will I have to pay it back?
you only get the 6500 if you have owned your home fro 5 years and are purchasing a new home now.
I bought a house in Feb 2005 is their any way I can get a credit for that. And was there a credit for that in that time
I have the same issue I bought my house on 12/28/08 and took the $7500 credit on my 2009 tax return. I have heard that you can amend your 2009 return and refile to remove the credit as a loan, but I am not 100% sure about this. Let me know if anyone else has heard this or come across this information.
I have also just heard of this method and am assuming you meant ‘08 tax return. I’ve received it from an accountant (not mine), but am waiting to see if it works. I was informed the best way to get repayment repealed would be to put up a fuss with your Senators & Congressmen, explaining it isn’t fair. Sounds like the better approach.
I’ve tried that approach and my Senators both replied to something totally different than what I wrote about. My Congressman has yet to reply.
My husband and I are first time home owners bought 9/30/09, but my parents are also on the mortgage/deed so there are 4 of us and they did previously own a home. Will we still get the $8000 or will we get less?
I purchased my home in august 08, I received the $7500 “credit”, and I am thinking of selling soon. My question is: how is “profit” on the sale of the home calculated? Is it simply sale price – original price? or can you deduct closing costs and realtor fees from the sale price? Could anyone point me to relevant forms?
Just bought a home on 12/24/09. I am a first time home buyer, but my wife owned a home within the last 3 years with her previous husband. She has been divorced for almost 2 years. The house is in my name. Would I still qualify?
I qualify for 6500. My wife of 3 years living together for 6 years in first home with my name on first home. New home has both names on title. Do we file seperetly? Because she is not on first home title and I do not qualify for first time and she does? Can we file together for 6500?
Thanks Shawn
i bought my home 12/15/07. do i qualify for he tax credit on my axes im about to file? can someone clarify?
I bought a house Dec 21, 2008, I got the 7500 credit, that I have to repay, is there a way to get the 8000? Or simply not repay the $7500? Me and my girlfriend bought the house together, however did not file jointly, is she eligible for the first-time home-buyer credit as well?
I closed on my home on 12-26-08 and qualified for the $7500 tax credit that you have to pay back in increments of $500 a year. The $8000 tax credit went in to affect 1/1/09. Do you know if there is re-file or something to where i wouldnt have to pay it back??
Sorry for the duplicate. I never saw the other post. : (