We are providing FREE consultations via PHONE or VIDEO conferencing for your safety during Covid 19 emergency. Please feel free to call us if you have any with questions! 877-788-2937

Credit for first-time homebuyers

Credit for first-time homebuyers in the 2008 Housing Act

Mike Habib, EA The single largest provision in the $15.1 billion package of housing tax incentives in the recently enacted “Housing Assistance Tax Act of 2008” (the Housing Act) is a measure allowing individuals buying their first home to take a tax credit of up to $7,500 of the purchase price. Designed to help reduce the existing stock of unoccupied housing, the tax credit allows qualified homebuyers to subtract the credit amount from their federal income tax when they buy a home. However, they are then required to pay the credit back over 15 years. The result is that the credit resembles an interest-free loan that must be repaid to the government. Here are the details of the new credit:

    • Individuals may credit the lesser of $7,500 or 10% of the price paid for the home against tax owed in the year of purchase. The $7,500 maximum credit applies both to individuals and married couples filing a joint return. A married individual filing separately can claim a maximum credit of $3,750.
    • The credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.
    • In the second year after purchase, taxpayers who took the credit must start adding the credit amount back into taxes paid incrementally over 15 years with no interest charge. This would work as follows. Suppose a first-time homebuyer purchases a home this coming December. He could claim a tax credit equal to 10 percent of the purchase price of the home or $75,000, whichever is smaller, on his 2008 tax return. Assuming for purposes of this example that the amount of his credit is $7,500, he then would be required to pay $500 (one-fifteenth of the credit) back on his 2010 tax return and on his return for each of the following 14 years.
    • If the taxpayer sells the home (or the home ceases to be used as the principal residence of the taxpayer or the taxpayer’s spouse) prior to complete repayment of the credit, any remaining credit repayment amount is due on the tax return for the year in which the home is sold (or ceases to be used as the principal residence). However, the credit repayment amount may not exceed the amount of gain from the sale of the residence to an unrelated person. For this purpose, gain is determined by reducing the basis of the residence by the amount of the credit to the extent not previously recaptured. No amount is recaptured after the death of a taxpayer. In the case of an involuntary conversion of the home, recapture is not accelerated if a new principal residence is acquired within a two-year period. In the case of a transfer of the residence to a spouse or to a former spouse incident to divorce, the transferee spouse (and not the transferor spouse) will be responsible for any future recapture.
    • The tax credit is refundable, meaning that households with incomes too low to owe income taxes could benefit from it.
    • The credit applies to homes purchased on or after April 9, 2008 and on or before July 1, 2009. A special rule allows those who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, to treat the purchase as made on Dec. 31, 2008 (effectively allowing them to claim the credit on their 2008 returns rather than on their 2009 returns).
    • A taxpayer is considered a first-time homebuyer if the individual (and the individual’s spouse if married) had no ownership interest in a principal residence in the U.S. during the 3-year period prior to the purchase of the home to which the credit applies.
    • No credit is allowed if the D.C. homebuyer credit is allowable for the taxable year the residence is purchased or a prior tax year, the taxpayer’s financing is from tax-exempt mortgage revenue bonds, the taxpayer is a nonresident alien, the taxpayer disposes of the residence (or it ceases to be a principal residence) before the close of the tax year for which the credit otherwise would be allowable, or the home is acquired from certain related persons or by gift or inheritance.

I hope this information is helpful. For tax problem resolution CLICK HERE.

Client Reviews
Mike has given us peace of mind! He helped negotiate down a large balance and get us on a payment plan that we can afford with no worries! The stress of dealing with the IRS is huge and Mike helped us through it all. The peace of mind is invaluable, thank you Mike!April S.
Mike Habib - Thank you for being so professional and honest and taking care of my brothers IRS situation. We are so relieved it is over and the offer in compromise process went just as you said. Mike is very professional and will give you honest answers to the OIC process and you can really trust him. You won't be sorry you chose him!Joe and Deborah V.
Mike is a true professional. He really came thru for me and my business. Dealing with the IRS is very scary. I'm a small business person who works hard and Mike helped me see that they are not that scary after all. He was always there with the answers I needed and was very good about calling me back which I appreciated since your first reaction is to freak out and ask a million questions. He solved a messy case and worked very hard to resolve it. His rates are VERY reasonable for the amount of work he does! I give him my highest recommendation!Marcie R.
Mike was incredibly responsive to my IRS issues. Once I decided to go with him (after interviewing numerous other tax professionals), he got on the phone with the IRS immediately (as in the same day I signed with him) to squash an impending issue. And he worked directly with them to quickly come to a resolution I am very happy with. I'd highly recommend reaching out to Mike to see if he can help you with any IRS issues. I'm very satisfied!Marshall W.
I’ve seen and heard plenty of commercials on TV and radio for businesses offering tax help. I did my research on many of them only to discover numerous complaints and unresolved tax issues. I found Mike Habib through my own online search and contacted him. He was very professional with great communication, always answering my questions and concerns. Mike resolved my complicated tax problem just as he said he would. I would definitely recommend his services to family and friends.Nancy & Sal V.
BBB Accredited Business
Trust Link
California Society of Enrolled Agents
Enrolled Agent