The Housing and Economic Recovery Act of 2008 provides many government hand-outs for those looking to refinance their mortgages or qualify for a first-time home buyers credit.  Most everybody is interested in the free money from the government (i.e. the first-time home buyers credit), but is it really “free?” (no, but please read on…)

First a few requirements before taking the credit:

1.  You gotta close on the home after April 9, 2008 but before July 1, 2009.

2.  If you’re single and make more than $75k per year, then your credit will begin phasing out until your income reaches $95,000.  Then it will all be gone.  And if you are married, then you can make up to $150,000 before your credit begins phasing out.  For married couples, the credit will be totally phased out when their income reaches $170,000.

3.  This credit is for first-time home buyers, defined as those who have not OWNED a home during the past three years (no, you can’t call your Maui condo a new home, move to Hawaii and take the credit).

4.  It’s a refundable credit.  That means you either use up the credit on your tax return to eliminate your tax due, or the IRS will pay you the difference.  For example, if you owe $5,000 in taxes and you take the first-time home buyers credit, then the IRS will pay you the difference, or $2,500 (I had to calculate that on my calculator).  Here it is again: $5,000 in taxes owed – $7,500 in credit = $2,500 refund to you for the difference.

5.  US Citizens are eligible for this credit.

Remember, this is a loan from the IRS.  You gotta give it back, unless you sell your home in the 15 years after you took the credit and you sold your home at a loss.  Then the IRS will forgive the loan.  But if you show a profit on the sale of your home, then they will make you pay back ALL of the remaining credit you owe them at that time.

You have to pay this loan back over the next 15 years, at $500/year.  But at least they are not going to charge you interest to borrow their money.  That’s pretty good.  And if you anticipate taking the credit in 2008, then maybe you can reduce your withholding at work and get more money in your paycheck NOW!

Thanks, Jason M. Blumer

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that (i) any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code; (ii) any such tax advice is written in connection with the promotion or marketing of the matters addressed; and (iii) if you are not the original addressee of this communication, you should seek advice based on your particular circumstances from an independent advisor.

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