The homeownership tax credit that the federal government created earlier this year is a hard- won tool at your disposal to encourage your customers to jump off the fence and get into the home buying market.
When you combine the tax credit with today’s continuing low interest rates, large selection of for-sale inventory, and low home prices, many of the pieces are in place for your customers to buy now.
How the Tax Credit Works
The First-time Home Buyer Tax Credit was passed this year as part of the Housing and Economic Recovery Act (H.R. 3221) on July 30 and targets any individual or household that hasn’t owned a home for at least three years. Taxpayers can take the credit on their 2008 tax return if they bought their house this year after April 9.
It’s worth up to $7,500 and can be taken in a single tax year. Authorization for the credit ends July 1, 2009, so if your customers wait to buy in the first half of 2009 they can take the credit on their 2009 tax return.
The actual credit amount is set as a percentage of the home purchase amount. That percentage amount is 10 percent, so your customers can get 10 percent of the home price credited against their tax liability, up to a maximum $7,500.
Income limits are $75,000 for individuals and $150,000 for households. Individuals whose income exceeds the $75,000 limit but isn’t more than $95,000 can still take the credit but on a reduced basis. The same thing applies to households earning up to $170,000.
Any house is eligible as long as it’s a primary residence and is in the United States.
Buyers Have 15 Years to Pay Back
To help keep the program cost effective for taxpayers, the federal government requires the tax credit to be paid back in small, 6.67-percent increments over 15 years, although repayment will be no more than $500 yearly and payments will not start until 2011. For that reason, some analysts have likened the credit to a 15-year, interest-free loan to help make home buying affordable.
There’s one restriction on the type of financing that your customers can use if they plan to take the credit. That restriction is on tax-exempt mortgage financing. That only applies if your clients are using below-market interest-rate financing from a public agency or nonprofit that’s funding the loan using proceeds from a tax-exempt mortgage-revenue bond issue. For most buyers, this won’t be an issue. It’s mainly an issue for low-income buyers using special mortgage financing.
Be a Resource for Clients
NAR Government Affairs has created two helpful documents that you can share with your clients to help them learn more about how the tax credit works. The documents are on downloadable and printable PDFs:
The IRS Web site also offers tax-credit guidance in an article that provides answers to many frequently asked questions.
And don't forget about REALTOR.org, which is a great source for more information on all aspects of the Economic Stimulus Bill passed July 30.