Well the housing reform billâ€™s $7,500 credit for first time home buyers is going to be a let-down for most Bay Area buyers. Hereâ€™ the real kickerâ€”it phases out for individuals whose income is needed to purchase the median price home on the Peninsula.
Also, contrary to any hope of getting a credit at the close of escrow, this is merely taken as a deduction on you tax filing so leveraging it to buy down points at the close of escrow and lower your interest rate is a no go.
Still, it will help take the sting out of the first year of property taxes for people who are able to qualify for this interest free loan.
We received an update from our accountant, Frederick Thompson who gave us the following information:
â€œFirst-Time Homebuyer Credit
Â· A first-time homebuyer is allowed a refundable credit up to 10% of the purchase price of a home, not to exceed $7,500 per family. A first-time homebuyer is a homebuyer (including the spouse) who has not held an interest in a residence during the past 3 years.
Â· The credit applies for home purchases after April 8, 2008, and before July 1, 2009. You can treat a residence purchased after December, 2008 as purchased on December 31, 2008 so that you can claim the credit on your 2008 return. The credit phases out for individuals with modified adjusted gross incomes between $75,000 and $95,000 ($150,000 – $170,000 for joint filers) in the year of purchase.
Â· The credit amounts to an interest free loan. The credit is paid back at $500 per year beginning in the second year after the taxable year in which the home is purchased. For example, if you purchase a home in 2008, the credit is allowed on the 2008 tax return, and the repayments begin with the 2010 return. If you sell the home or stop using it as your principal residence, any unpaid credit is due on the tax return for the year of the sale or when the property stops being used as your principal residence.
Â· You cannot claim the credit if your financing is from tax-exempt mortgage revenue bonds, if you are a nonresident alien, if you dispose of the residence before the close of the taxable year in which you purchased the home, or if you are eligible for the District of Columbia first-time home buyer credit.â€
By the way, if you need a good accountant his name is Frederick Thompson and he’s in San Mateo. We’ve used him for the last several years and he’s very informative and helpful.
Frederick A. Thompson, CPA an Accountancy Corporation
The information contained in this article is educational and intended for informational purposes only. It does not constitute real estate, tax or legal advice, nor does it substitute for advice specific to your situation. Always consult an appropriate professional familiar with your scenario.