It seems like several times a week, I have a buyer who asks about the $7,500 tax credit from the government. They are wondering if it is a loan or a gift? It is a loan, but it is a good loan to utilize if you are a buyer. Basically, the government will give you the 7,500 tax credit and in return over the next 15 years, you will pay them back $500.00 per year. Now, I know it’s never fun to have an extra expense at tax time, but I am going to tell you the biggest benefit of this tax credit. If I were in the shoes of a first-time home buyer, I would take that $7,500 credit and apply that directly toward the principle portion of my home mortgage. By doing so, you will save yourselves over $20,000 in interest over the life of the loan. Sounds like a pretty good savings, right? It truly is! So you could even look at this credit as a gift. I do! If someone is going to help me save 20,000 or more…I am thrilled! Below you will find some commonly asked questions regarding the tax credit:

Tax credit offered to new homebuyers
Expires June 30, 2009!

1. Who is eligible?
a). First-time homebuyers or any homebuyers who have not owned a principal residence in the last three years

2. How does it work?
a). Eligible purchasers can claim the $7,500 credit on their annual tax return form.

b). Amount of credit: 10% of cost of home or a maximum of $7,500

3. How is it repaid?
a). Two years after the credit is claimed, the homebuyer will have to start paying it back.

b). 15 equal annual installments will have to be paid back to the IRS every year.

c). 6.67% of the borrowed amount or a maximum of $502

d). If home is sold before 15 years, the remainder of the loan will have to be repaid to the IRS upon the sale.

e). Part of the liability can be forgiven if the gain on the sale is less than the amount of the loan.

4. What are the restrictions?
a). Home purchase time limit:

b). Homes purchased on or after April 9, 2008 and before July 1, 2009

c). Home must be a single family residence (including condos, coops) that will be used as a principal residence.

d). Home must be located in the United States.

e). Home cannot be financed through mortgage revenue bonds.

f). Income restriction: To qualify for full $7,500 credit, the taxpayer must make no more than
1). $75,000 for single returns
2). $150,000 for joint returns

g). To still qualify for credit but at a lesser amount, the following income caps apply
1). $95,000 for single returns
2). $170,000 for joint returns

For more information on the tax credit: