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$7500 First Time Homebuyer Tax Credit

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Farm House with Rising SunUpdate 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.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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1,255 Responses to “$7500 First Time Homebuyer Tax Credit”

  1. Aida says:

    Has anything been said about early repayment? What if I want to refinance my house in a year or two?

  2. Jessica says:

    Two things:

    1. Why are people claiming first time home buyer tax credits for home purchases that occurred in 2009 on their 2008 income tax returns? Would you claim income from 2009 on your 2008 tax return? No.

    2. People keep complaining that it’s not fair they have to pay back their FTHB tax credit or didn’t get a credit at all because of when their closing date is/was. You knew the circumstances going into signing your mortgage and your timing may be unlucky but saying it’s unfair is not what it is. What’s unfair is where that tax credit comes from… redistribution of wealth. I know home buyers didn’t make the tax law and I think everyone should try to take advantage of whatever the tax law is because I certainly would if I were buying a home but the sense of entitlement people seem to have towards this tax credit and any other sort of government handout is unreal.

    “A government big enough to give you everything is big enough to take everything away.”

    • Deb says:

      Thanks for you comments Jessica, I guess the sense of entitlement as you refer to it comes from years of paying for all the other programs that other people take advantage on a daily basis. My boyfriend has always worked 2 if not 3 jobs from the time he was 19 and is now in his 30′s. Not asking for a hand out… or entitlement… I was merely saying that the original time frame of the program was April – July 2009… he closed 9/30/09… and now the program changed a few months later, with a new time frame of Jan – Dec 2009 and a non-payback clause. I guess the insult came when he found out his job is being moved to China… after 13 years of dedicated work on the crappiest shift. So I don’t consider it entitlement… I consider it due to him after supporting his fellow americans and people like the Octuplet mom who CHOOSE that lifestyle.

  3. Anonymous says:

    Does ownoing a mobile home quilify you as a first time home owner ?. We bought our house in the time frame of 2008 and was told since we owned a mobile home that we do not quilify for the loan … Help

  4. Allison says:

    Does anyone know what determined the dates from which you qualify? It sounds like they pulled it out of the sky. Im disgusted, I fell just 4 days shy of qualifying(closed April 4th) and need the money very badly. The economy was not great when I closed on my house, but im getting no breaks…it REALLY stinks!

  5. Jess says:

    I’m extremely upset that because I bought my home on October 22, 2008, instead of January 1st 2009, I don’t get the true tax credit. It is unfair that I have to pay back the credit, when all these other people get $8,000 and don’t have to pay a single penny back. In what way does that credit help me? I have to pay it back, it is no help at all. I should be eligable for the same tax credit when I also bought my home durring the time that we were going through economic crisis. I could truly use that credit as a first time homebuyer. My home desperately needs help, and being a graduate student, I have little if any money to put towards home repair and upkeep this first year, and I do NOT want another bill upon my shoulders for the next fifteen years! Is there anything that can be done??

    • Alex says:

      I’m sorry you feel that way Jess, but if you bought the house knowing you were going to have to pay it back then I don’t buy the “I need it” excuse. You bought a house like everyone else did and no one put a gun to your head and forced you to take on the refundable $7500 tax credit as a “bill” (which it’s not; it’s a $7500 0% loan).

      If you bought a house and did your homework on whether or not you could afford it then good for you. If you didn’t, then I have absolutely no sympathy for you.

      So let’s assume you knew what you and your boyfriend were getting yourselves into when you bought the house. Now someone else qualifies for a hand out and you don’t. That’s your issue; not your situation.

      What about all of the other people that bought at the height of the market and are now severely underwater? What should we hand them? If anyone deserves it, it’s them.

      I’m not denying that it sucks (I’m in the same boat as you; getting the $7500 and not the $8k), but stop calling it another “bill” on your shoulders or just don’t take it. I’m taking the credit and I’m paying off debt and I’m going to make the government’s money work for me and then pay it back without interest, regard for inflation, and having gotten rid of the interest I was paying. Try looking at it that way.

      If it still really gets to you, then call your senator/representative. Sorry for being abrasive, I don’t mean to offend but debate in a lively fashion.

      • Anonymous says:

        I bought my home with no intention of even taking the $7500 dollars… because, I did not want another bill… however, if I was aware that two months after I bought my home, people would be handed 8000, I would have waited. I knew about the 7500, and had no interest in it. Thats why Im not taking it. I also bought my home, knowing that I COULD afford it… which is why I bought a home for 57,000 instead of something crazy like 250,00 or whatever that all these other people have bought and failed to make payments on, that we are all now suffering for. I, have done my homework. I bought a home that I knew I could make my payments on, so these people that bought at the “height” of the market, that are now suffering because they bought a home they cant afford… I have no sympathy for them, yet I am now suffering because of their poor choices.

        I am a person who pays her bills on time, all the time. I am a person who doesnt overspend and charge up crdit cards. I am a person that buys only what I can afford. I am not greedy, I get what I can get, and like a good citizen, make my payments… and before I make a purchase, I make sure, I can afford it.

      • Anonymous says:

        You are right… nobody held a gun to my head. Nobody forced me to take 7500 dollars that I have to repay, and I am NOT taking it. However, if I know that two month down the road I would have been handed 8000 dollars for buying a new home, I would have certainly waited.

        You say the people who bougth at the height of the market that are underwater are the ones who need it the most… well the fact is, those that are underwater because they cant pay their bills, thats THEIR fault not mine, yet I and everybody else is siffering the consequences. I chose to buy a home for 57,000… no it’s not a mansion, but it is what I can afford. I was not greedy, I did not go and buy a home that was way over my budget. I bought what I could afford, and I continues to do so. I do not charge up credit cards. I do not make purchases that can not be paid.

        I am the citizen that buys what I can afford, makes my payments ontime every month, middle class citizen, never takes more than what I need. I AM THE CITIZEN THAT SHOULD BE GIVEN A HANDOUT

        • Alex says:

          The people that made purchases at the height of the market and can afford what they bought were the ones that I was suggesting should receive the hand out; not the nit wits that bought with starry eyes.

          And I’m playing more devil’s advocate than anything else. It’s reassuring to know that people still purchase homes with intelligence.

          And in our exchange you can find the heart of this debate, who deserves the break? You can argue that the people who do it right are the ones that deserve it because they should be rewarded (give to the “haves”). You can argue that if you don’t prop up the idiots that bought at the height and bought more than they should have that they’ll bring down the whole system.

          I bought a house in August of ’08 and I’m probably already underwater by at least 5%. My wife and I both went to college, got jobs, met each other, saved up, got married, bought a house, are on a path to being debt free and bought a modest house for our area. But anyone in my town that bought with their eyes and not their wallet have brought down the value of my house.

          And if more people default and the banks can’t figure out what they have on their books they’ll lend even less. Then more people default on their mortgages and my home value goes even lower. My taxes go down which is nice, but I did everything right and if I get laid off, I’m the one paying for it. So should I get the hand out? Or should we prop up the people that are about to lose their house and continue this wretched cycle we’re in?

          Bottom line is, that if you had been notified the day before you put in your offer, the guy that put in an offer the day before would be screaming up a storm. Someone has to draw a line in the sand somewhere and both you and I got stuck behind it. I’m taking it and putting it in a CD and letting it gain interest and you’re not.

          I hope things work out for you and I didn’t intend to offend. Thank you for being a smart home buyer, maybe more people could take a lesson from you, we need more people like you in this country.

          Good luck on your degree!

  6. Mark says:

    I closed on my house March 31, 2008. The price was $108,000. I meet the income qualifications,but just missed the April start date for the first tax credit of $7500. Anyone know if I’d possibly qualify for the $8000 one in this recent stimlus package. I , like most people , could use it. What ticks me off is the fact that they just picked “April” to start it ….why not open it to anyone who bought in 2008!! Who would I call?

    • Anonymous says:

      no you do not. You only qualify if you bought your house between jan-dec 2009, for the 8000. You dont even qualify for the 7500, because you bought your home before April 4th.

  7. Mary says:

    I bought my house last year and was pleasantly surprised to learn of the credit/loan. I bought a house for less than $75,000, so my credit/loan was 10% of my purchase price. Since I took money out of my IRA, I expected to have a BIG tax bill, instead I was able to pay off my credit card, my state income taxes and keep the cash I had put away for taxes in the bank. I was laid off the end of January, so it worked out.
    I don’t think it’s fair that I have to pay it back and someone who buys in 2009 doesn’t, but we have 2 years for our representatives in congress to figure it out and “forgive” the loans. I don’t agree with the stimulus plan on principle, but if they are going to hand over our tax money to banks that, in turn, give million dollar bonuses to the bone heads that caused the problem, I’ll take it.
    I would have liked to have seen something more in the way of the interest free loan I received for down payment assistance, where a portion of the loan is forgiven the longer I live in my home. (I only pay it back if I move before I’ve lived here for five years.) It encourages people to view their homes as homes and not investment property.

    • Anonymous says:

      I agree… but I’m unsure of what you mean when you say, “we have two years for our representatives in congress to figure it out and “forgive” the loans.” Does this mean, they are thinking of changing the 7500 to something that doesnt have to be paid back?

      • Mary says:

        I am certain that there will be complaints to representatives and I think they will change the 2008 tax credit to a real credit not a credit/loan. I may be wrong and if I am I am still happy with the deal I got. It makes it easier to budget on unemployment benefits now that I don’t have debt.

        • Chris says:

          With the seemingly arbitrary April 2008 date and the repayment or nonrepayment differences, sounds like a consumer class action suit in the making. I wouldn’t be surprised to see it happen.

  8. pam newman says:

    i am a first time home buyer i got the ship program and usda rural housing assistance program do these prevent me from getting the 8,ooo tax credit my salary is within the limits? also my closing should be around 4/14/2009, i have not filed my taxes yet, what is the last date that i can claim this home purchase on my 2208 taxes?

  9. BC says:

    The thing is though, the April 2008 date is not just some arbitrary date that was picked out of the sky, it is the date the bill was signed, so that is the effective date of the credit.

  10. anjla says:

    I am a first time home owner i purchased my home in Feb 2008,what i don’t understand if this tax credit is for first time home owners why do u have to have to qualify if u have purchased from a certain date to a certain date.It makes no differance i am still a first time home owner who purchased in 2008 and should qualitfy im sure there are other people who did the same feel the same.This tax credit is to help people out there but how does it help us.

    • Kay says:

      The credit isn’t actually to help people out per se – it is to stimulate home purchases. The intention along with this concept is to bring out the people who can purchase but have yet to do so by creating a beneficial incentive. The original bill was introduced in April 2008, so that is where they began its effective date. It is not an arbitrary date as most conceive or want to claim. Anyone buying prior to that date had NO idea it was even an option. They bought because they wanted to and could. I know because I was one riding the fence and keeping up with this bill before choosing (yes, I said choosing) to buy. It actually started out as a credit to those buying foreclosed properties only. It changed during the bill phase before being singed into law…. to be a FIRST TIME HOMEBUYER CREDIT. So, many upset not even knowing how this credit started or what it was about. Again, it was intended to removed the overage of foreclosured homes, not to assist the people. I suppose it was revised the way it was signed into law to stimulate all home sales.

  11. Louise says:

    We had to sell our house in 2008 because of divorce. Then I bought a house on my own. Do I qualify for the credit? This is the first time I bought a house all by myself. Thank you

  12. Erik says:

    My parents want to help me get a house by buying the house, and selling it to me as a contract for deed. Does this disqualify me?

  13. Jen says:

    Hi,

    can some one advice, I live in MA and will live here til December of 2009. In November of last year I bought a 1st time home in Chicago, with intentions of moving next year, I’m renting the house at the moment. My question is will I qualify for the $7500 credit if I don’t live there at the moment?

    • Jim says:

      You won’t qualify because you already bought a house.

      • Karen says:

        Jen…

        If you did not live in the house for long enough (or at all) for it to be considered your PRIMARY RESIDENCE, YES… you should qualify. From what I have read, if audited, the IRS would look at things such as phone bills, etc. for residency. The fact you have documentation that it is now being rented should be a strong case that it is not used as your a Primary Address. However, I’m sure it is always wise to seek legal advice for confirmation… but I believe you are okay!

        Again…it is FIRST TIME HOMEBUYER (or within 3 years) for PRIMARY RESIDENCE. Many people forget (when promptly saying you do not qualify) that although you did have ownership…. the home had to be considered a Primary residence

        PS: I know DC had a first time ownership credit. So, as long as you didn’t receive a ‘perk’ for first time buying and agreed it was a primary residence…. I believe the above holds true.

        GOOD LUCK!

  14. deidrea says:

    i purchased a home in july 2008 first time home owner. i have already filed my taxes. i want to know if someone can direct me in the right direction of still i still get the tax credit? and how do i go about getting it.

  15. jim says:

    I rent a space in a trailer park for the trailer I own. If I buy a home, will I qualify for the 2009 tax credie?

    • Abby says:

      Jim,

      Unfortunately you don’t. I was in the same situation. My tax advisor said the mobile home I owned but rented the lot on which it was located in a mobile home park qualified as a primary residence. Therefore, I couldn’t apply for the first time homebuyers credit. He said even if a person owned a houseboat, it was considered a primary residence and they would not qualify. Doesn’t make sense but…there you have it.

    • cataztrophe says:

      Not sure about your tax advisor, but the information I read about First-time Homebuyer specifically states alternatives such as houseboats, etc so I would not know why a trailer should not qualify. You own it. You receive a deed. Just because you rent the land that it resides on might disqualify you for property tax credits but I would definitely check it out with the local IRS office with your specific details to be sure.

  16. Ted says:

    Help, I am wondering. My father recently passed away. My mother is going to remove him from the deed and put my name on there instead…in case something happens to her. With my name on this deed, and the house is paid off, I will not be living there…will I still qualify for the first time homebuyer credit?

  17. Jill says:

    Does this mean that since I married my husband who had owned a house in college and I just bought a new house in my name and him as a cosigner, that we are not eligible to get this tax cut?

  18. david says:

    hi
    why do people who bought last year have to pay back the 7500 and people who bought this year not have to pay it back,this is just another example of bad politics,they shoud pass an extension to last years credit so it does not have to be paid back,its wrong to say that this group that bought last year should have to pay it back and then turn around and tell people who buy this year that they do not,not to mention the time periods overlap each other by 6 months.please contact the government and see what they are going to do about it,i would if i knew who to contact.

    dave md

  19. Matt says:

    I bought my in-laws house for $150,000 in december of 2008. I was pretty excited about the repayable $7500 tax credit.. until i was told i was denied the credit due to purchasing my home from a relative. I think that is pretty messed up considering that i i pay taxes just like anyone else and purchased a home for that price. Does anyone know if that rule is still in effect?

  20. Tom says:

    I am selling my house to someone who qualifies for the first times home credit. Can I finance the purchase? Also can I give the buyer a contract for deed instead of a mortgage and still qualify for the tax credit?

  21. billy says:

    does anyone know what a “recovery rebate credit” is? i don’t. it was part of my return and affected the $7500 tax credit. can someone please respond if you know something about it?

  22. Karen says:

    Billy…

    If I am not mistaken, the Recovery Rebate was the check sent out to most individuals last spring and summer in the amount of (for single) $300 or $600. This should not have affected your housing credit, but it may have affected your overall refund. If you did not receive this credit last year, it can still be recovered. Tax software asks if you received it. It you did, there’s no change in your refund. If you did not, however, you would see the increase (as mentioned above) in your refund.

    The only other reason I can see a difference in $7,500 is if you purchased jointing a home with someone and filed separately (each would get $3,750 if you chose 50/50… and it would adjust according however you specified percentage of ownership). If you filed single you would have had to show 100% of the property was yours.

    Referring to tax software again, if you used something like TurboTax, you can view details and it will show how much of the $7,500 was actually part of your return.

    Hope this helps.

  23. Mark says:

    What if I get laid off AFTER I purchase my first home and receive the $8,000 tax credit from the IRS, (most likely it could happen in my company), Will I have to pay the $8,000 back ?

    • Jason says:

      Well if you closed this year, you would get the $8,000 when you file you taxes next year (and it does not have to be paid back). It doesnt matter if you get laid off or not. It is not based on your employment, the credit is based on the purchase of your first house.

  24. Renee says:

    We had a loan, not a mortgage that paid for property – built built our home and moved in end of April 2008. If we claimed interest from a 1098 (i think it is) that the bank sent us will the irs think we had a mortgage and disqualify us or do we qualify for the $7500 tax credit.

  25. Mike says:

    Hey all my I just got married in June of 08 my wife owned a house before we got married, She sold it and we move to Arkansas were I bought a house in August of 08. Can I use the 7500 tax credit?


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