Real NEastate: Tax credits

By Stacey McCarthy

Q: What’s the deal with the tax credit program for first-time buyers? I bought my first home in Holmesburg last May, and my neighbor who just moved in last week said she is getting an $8,000 free tax credit. Do I qualify for this credit, and how do I get it?

A: There are two different first-time home buyer tax-credit plans. You do qualify for one, but not the one your neighbor will get.

Your neighbor will be getting the “new” first-time home buyer tax credit, recently modified in the American Recovery and Investment Act.  The new tax credit is worth the lesser of 10 percent of the purchase price or $8,000.  It doesn’t have to be repaid unless the home is sold in less than three years of purchase. It is available for consumers purchasing their primary single-family residences between Jan.1, 2009 and Dec. 1, 2009. If you bought your home last May you do not qualify.

You do qualify, however, for last year’s “old tax credit” of the lesser of 10 percent of the purchase price or $7,500. The home must have been purchased between April 9, 2008 and Dec. 31, 2008. The same income limits and eligibility applies, but there are a few major differences. The old $7,500 “credit” is really a no-interest loan.  A 15-year repayment plan is tentatively slated to begin with your 2010 tax filing at the rate of $500 a year or 6.67 percent. If the home is sold before 15 years, the outstanding balance will be due. Although changes may be made in the future to the $7,500 credit payment plan, there’s nothing on it so far. Lastly, there’s no credit allowed if your home was financed with state or local bond money.

For both tax credits, the purchaser can not have owned a home in the three years previous to the purchase. Both credits reduce the tax liability, and if there is a balance after taxes are collected, it is paid out as a refund to the home buyer. For both credits, the adjusted gross annual income to receive the full credit can be no more than $75,000 for individual, $150,000 for joint filing, and there are reduced credits for first-time home buyers above those income levels.

Think the old $7,500 credit is no good if it has to be repaid? Well, it’s a zero percent interest loan, so you could use it to pay off high-interest credit. Talk to your tax advisor before filing.

Stacey McCarthy is a real estate agent with the McCarty Group of Keller Williams Real Esate. Her Real NEastate column will appear on NEastPhilly.com every Wednesday.