Credit Confused?

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs, Uncategorized

The $7,500 tax credit that qualifying first-time homebuyers who bought after April 8, 2008 but before January 1, 2009 are eligible to take when they file their 2008 taxes is part of the Housing and Economic Recovery Act of 2008, a piece of legislation that was enacted last summer due to the housing crisis.

However, it’s not so much a tax credit as an interest-free government loan because you’ve got to repay it. You don’t have to begin making payments until 2010 and you can be spread out the payments over 15 years. Essentially, you would pay an additional $500 in tax each of those years.

If you stop using the home as a principal residence or sell it, all the payments become due on the tax return for the year that happens… although there are a few exceptions and also some conditions and twists.

The $8,000 first-time homebuyer’s credit that’s in the stimulus package requires you to jump through a number of hurdles and hoops to qualify for it. But if you do, it’s a much more lucrative benefit for a number of reasons.

It’s bigger — $8,000 vs. $7,500. It’s a real tax credit, not a loan. You don’t have to repay it as long as you remain in your home for at least 36 months after the purchase date.

And the $8,000 credit has another significant advantage: Even though you must purchase the house between January 1 and November 30 of this year, the IRS recently announced that you can claim the credit on your 2008 tax return if you wish. So you don’t even have to wait until you file your 2009 taxes to take advantage of it.

The IRS announcement I mentioned earlier specifically says that the new $8,000 credit doesn’t apply to first-time homebuyers “who purchased a home after April 8, 2008, and on or before Dec. 31, 2008.” So you’re pretty much stuck with the $7,500 tax credit-that’s-really-an-interest-free-loan, unless a law is passed that allows you to take the $8,000 credit.