The federal government has enacted a tax credit of up to $7,500 to encourage first-time home buyers to jump into the housing market. If you meet the relatively easy qualifications, you could find an extra $7,500 in your pocket as a bonus for buying your first home.
The requirements for the first-time home buyer tax credit are:
- You (and your spouse, if you’re married) haven’t owned a home in the last three years.
- The home you purchase must be your principal residence where you live most of the time.
- You need to buy your home after April 9, 2008, but before July 1, 2009.
- Your income is less than $75,000 if you’re single or a married head of household or $150,000 if you’re married and filing a joint tax return. If you earn up to $95,000 (single) or $170,000 (married couple), you may get a partial tax credit.
The First-Time Home Buyer Tax Credit is a true tax credit, not a tax deduction. That means the federal income tax you owe will be reduced dollar-for-dollar up to the amount of the credit.
For example, if you owed income tax of $10,000 and claimed the maximum first-time home buyer tax credit, your tax bill would be cut to just $2,500. If you owed $3,500 and took the maximum tax credit, you’d get a check for $4,000 from the government.
The caveat is that the first-time home buyer tax credit must be repaid. The repayment period is 15 years. That means if you took the maximum tax credit, you’d owe an extra $500 on your taxes each year. If you sell your home at a profit, you’ll have to pay back whatever you still owe. However, if you sell your home at loss, you won’t have to pay back another dime.
Like anything else that involves taxes, the rules for the first-time home buyer tax credit are complicated, so you should ask a tax professional for advice about your personal situation.