Tuesday, June 9, 2009

First-Time Homebuyer Tax Credit

With housing prices at an all time low, first-time homebuyers are in a prime position to maximize their opportunities in today’s real estate market, especially with the authorization of the $8,000 tax credit by the American Recovery and Reinvestment Act of 2009. The following is a brief summary of some of the key factors.

1. The tax credit is equal to 10% of the purchase price up to a maximum credit amount of $8,000.

2. Applies to “first-time homebuyers”, which is classified as a buyer that has not owned a primary residence in the last three years.

3. Residence must be purchased after January 1, 2009 and before December 1, 2009.

4. Any single family residence, including condos and townhouses are eligible.

5. The full credit amount is available to individuals with an AGI less than $75,000 ($150,000 for joint return). There is a phase out period for an AGI up to $95,000 ($170,000 for joint return).

6. The tax credit is refundable. The credit amount is used to reduce or eliminate the tax liability and the remaining balance is then refunded to the purchaser.

7. The credit does not have to be repaid unless the home is sold within three years of purchase. Then the entire credit amount is recaptured upon the sale.

At the end of May 2009, HUD authorized the tax credit to be utilized to cover closing costs and prepaid expenses through state housing authorities, FHA approved non-profit agencies and bridge financing. However, at this time there does not appear to be any lender participation in this type of loan.

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