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Tax Credit For First Time Home Buyers

The news reports good news for many first time home buyers purchasing a home between April 9, 2008 and July 1, 2009. These first time home buyers may be eligible for a tax credit under a new bill that has been signed by the legislation and is anticipated to be signed by President Bush. The tax credit will be $7,500 or 10% of the purchase price of the home; whichever is less. This is creating a lot of excitement for many potential first time home buyers; however, a shadow looms over the excitement.

Initially looking at the tax bill it looks to be a great deal. A tax credit is more valuable than a tax deduction as the credit is a dollar for dollar reduction in taxes. Additionally the tax credit in the bill is refundable which benefits filers whose federal taxes are less than $7,500. For instance, a filer who owes $2,000 in taxes will still receive $5,500 and a filer who gets a tax refund of $2,000 will receive a refund of $9,500. This does not go without a few catches though, these include:

* Pay Back: Although labeled at tax credit it is more of an interest free loan. A first time homebuyer who claims the credit will have to repay it in installments over 15 years. The repayments will start in the second year after the home is purchased. A home purchased and claimed on the 2008 tax return will have an additional $500 a year in taxes starting in 2010 and going on for 15 years. Should the home be sold before the 15 years the remaining balance is due at closing unless the home is sold at a loss.

* Income Limits: There are income limitations to be eligible for the tax credit. AGI of below $75,000 for single or head of household filers can receive the whole credit while they will only receive a partial credit if the AGI is between $75,000 and $95,000. AGI of below $150,000 for married filing jointly are eligible for the whole credit while they will only receive a partial credit if their AGI is between $150,000 and $170,000.

Additionally the legislation allows homeowners that do not itemize to deduct up to $500 in property taxes each year for single or head of household filers and up to $1,000 for married filing joint. Joint fliers who pay property taxes in 2008 will be eligible for a standard deduction amount of up to $11,900 and the single homeowner will be eligible for up to $5,950.

Naturally the amount of the property tax deduction is not allowed to exceed the actual amount paid in property taxes. For instance, a single filer who paid $400 in property taxes will only be allowed to deduct $400. Additionally, unless Congress votes to extend the property tax deductions it is limited to the tax year 2008.

About the Author

J Stromsteen has many years expertise in the finance, real estate, and insurance industry. She contributes to various websites such as First Time Home Buyer where you can find today's mortgage rates as well as a wealth of information on getting a First Time Home Buyers Loan .

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