$7500.00 Interest Free Loan for New Homeowners
by AC Hamilton III on Jan 25, 2009 with 18 Comments
Understanding the newly created tax credit for first-time home buyers in this 2008 tax season. There are things you need to know.
Congress created a new tax credit for new homeowners last year that applies to the 2008 tax payer. What is this? Who qualifies? How much can you qualify for? How do you get it? These questions and more, I will answer in this article.
What is this?: This is not a tax credit equal to others. Most tax credits in history, do not have to be paid back. This one does. This really amounts to an interest free loan to new homeowners, if you qualify. You have fifteen years to pay this loan back. You have to begin paying the loan back two years after you file for the credit. You must pay one fifteenth of the total amount you qualify for. For example: The maximum allowable, if you qualify is $7500.00. You must pay back $500.00 per year. This equates to an additional tax liability each year for the next fifteen years of $500.00. The good news: It is a loan with zero percent interest. You can build in the payback if you desire, by making adjustments to your withholding amounts from your payroll check.
How much can I qualify for?: The maximum credit available is 10% of the purchase price of the main home, up to a maximum of $7500.00. Everyone does not qualify for the maximum amount. Limitations are adjusted or phased out based on income; more specifically, your modified adjusted gross income. For married filers, this phase out begins at $150,000 and for all others begins at $75,000. If your MAGI is less than these amounts, it means you qualify for the full amount if your home cost $75,000 or more.
Who qualifies?: Any resident of the United States of America, including an alien resident with an ITIN issued by the IRS if they have not purchased or owned a main home in the past three years, and make a new home purchase between April 8th, 2008 and July 1st, 2009. The home must be purchased in the United States. If it is a new home construction, the qualifying purchase date is considered to be the date you occupy the home. You can be married or unmarried to qualify. If two unmarried people buy a main home together, they may split the total credit any manner they choose as long as it does not exceed the maximum allowable $7500.00 credit or 10% of the home purchase price, whichever is less.
If you die, you do not have to pay it back. So, that’s what I have to do to get off the hook with Uncle Sam. If you are married and die before paying it back and filed jointly, the surviving spouse only has to pay back their portion of the amount claimed.
If the qualifying home you purchased ceases to be your main home, the entire remaining balance becomes due the year this happens.
If you sell the home, the remaining balance owed on your installment becomes due in full, but only up to the amount of gain realized by the sale of the property. (Home not sold to a close relative) If there is zero gain or a loss on the sale, then you may owe little or nothing. It is best to seek professional help if you sell in order to determine your liability.
If you transfer ownership of the home to your spouse or former spouse, they become responsible for the payment of the remaining balance of the loan.
If the home you are purchasing, or plan to purchase is a vacation or rental home, you do not qualify for the credit. However, if the home is your main home and you are renting rooms within the home; you qualify for the credit. Limitations apply here as well.
How do you get this credit?: Use the form 5405 when you file your taxes. For non-married couples who co-own a home, check out IRS Notice 2009-12 for instructions.
Special Note: Many people see this as just another way of financing people for homes they cannot afford. I do not agree. People can abuse this, but I don’t agree this is the intent because stricter guidelines for lending were also put into place at the same time. This is a great loan for fixing up the home you do purchase, resulting in greater value added to the home, at the best interest rate going, and talk about easy payment plans: this is it. Use it wisely. Some “free” things we pay for actually have a payback. If you don’t put it into the home; put it into stocks or some other interest bearing investment and you are sure to make a decent return on it. More information is available at: www.irs.gov
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Published in: Homeowners
rutherfranc | Jan 25, 2009 | Reply
tax season is coming! very timely piece sir!
Darla Smith | Jan 25, 2009 | Reply
Very informative and helpful. Thanks for sharing.
denus | Jan 25, 2009 | Reply
very interesting.
Bren Parks | Jan 25, 2009 | Reply
Excellent info…
Inna Tysoe | Jan 25, 2009 | Reply
Good info. Thanks.
Inna
Morgana | Jan 29, 2009 | Reply
Anything dealing with tax, loans, and such confuses me and gets me nervous.
AC Hamilton III | Feb 1, 2009 | Reply
Thanks everyone. I hope this information is useful and takes confusion out for those who need this info.
AC
trishia | Feb 3, 2009 | Reply
Very valuable information. Thanks for sharing!
Kathy | Feb 8, 2009 | Reply
I have researched this “Tax Credit” extensively and I think it is another example of the stupidity of the Bush Admin. If you view a lot of the officaial info websites regarding this “credit” the feds have not figured out a lot of the mechanics of how to administer this credit or to “charge” people for the pay back. There is some fine print on this that I personally would not trust. I personally feel if the feds can feed billions to Wall St and the free spending banks, they can up with something better than this plan to help the housing market – like a credit that does not have to be paid back.
AC Hamilton III | Feb 8, 2009 | Reply
Dear Kathy,
I see you can’t let go; another Bush rant. He is no longer President, so give yourself some stress relief. You have “researched” this extensively. Come on. The fine print; you say, like there is more, but failing to say what you know. I am not trying to be insulting, but enlighten us. I would be concerned regarding credibility if you believe the best plan is to give away the money. I will support a payback any day. Now, let’s put some real stress back into your life. You don’t mention President Obama and his new 900 billion dollar package. Any of this that does not require payback will cripple us, so I have a hard time believing your post is an informed one. Bush’s “stupidity” now becomes Obama’s….what?….ummmm, I am searching for an appropriate word, but I don’t believe in disrespecting the office of the Presidency, whether I support the decisions or not. I can disagree without it. Of course, you probably have experience to compare, as President, when? One other thing to note: There isn’t a single President that does this all by himself: It took Democrats and Republicans to make it happen. Okay, sorry everyone, but this ranting causes me to rant. This will be the last one. I will delete all other ranter’s.
SS | Feb 8, 2009 | Reply
Hola,
Maybe this is a stupid question. I co-owned a main home within the past three years when I was married. I was the secondary co-borrower. I am now divorced and purchased a home under my own credit and maiden name. This likely is not an exception to qualify, right? Just thought I’d ask since this is my first home under my maiden name and as a single person and primary borrower.
AC Hamilton III | Feb 8, 2009 | Reply
Co-owned and main home are the operative words that make you ineligible for the credit. You can’t have had ownership interest in a main home by any degree. If your name was not on the home you would qualify, whether married or not, but in reading your question it seems you were both, married, and co-owner. Nothing stupid about your question. It can be confusing.
P.S. Keep a close eye on what Obama is doing; maybe there is something there for you.
Thanks for visiting,
AC
SS | Feb 9, 2009 | Reply
Thank you. I appreciate your response.
ccchilders | Feb 17, 2009 | Reply
i own a home in NC. It has been a rental property since 2005. I moved to TX in 2006 and now in 2008 I have purchased a home do i qualify for the 7500.00
AC Hamilton III | Feb 17, 2009 | Reply
As long as you can prove that any home you owned or had ownership interest in for the preceding three years was rented and not your main (principal) home, you would qialify. You don’t have to prove it up front. I mean as long as you can, if asked. How much you qualify for depends on the price of the home. Review above.
AC
lost | Mar 5, 2009 | Reply
i just purchase my house 2/28/08 the title did not get change unitl march 3rd so i guess no loan for me my question is what credit do i get.. miss star and oh my new windows aren’t a tax credit ….
dc in mi | Mar 15, 2009 | Reply
Is a downpayment from the Genesis Foundation considered “tax exempt mortgage revenue bonds”?
Matt | Mar 29, 2009 | Reply
Very informative. I think this is a win-win situation. 0% for 15 years?!?! How could you pass that up? And the payback is more than reasonable. It’s actually good to see that it is not a hand out that taxpayers are ultimately responsible for. It’s a hand up for responsible homeowners who will hopefully put that money back out into the marketplace and jumpstart this economy.