New tax credit will help would-be homebuyers

WASHINGTON — Anybody who's been sitting on the sidelines hesitant to jump into real estate until conditions settle down should know these dates: April 9, 2008, through June 30, 2009.

They mark the eligibility time span to qualify for the home-purchase tax credit created by the massive housing bill approved by Congress and signed by President Bush.

If you have not owned a house during the past three years — or are considering buying your first home — and can go to closing before the end of next June, you may be eligible for up to a $7,500 credit against your federal taxes for 2008 or 2009 ($3,750 if you file as a single person).

The new credit is expected to benefit hundreds of thousands of buyers, although Congress set no limit on how many can qualify. Since the specifics changed during the past month as the Senate and House negotiated a final compromise, here's a quick overview of the credit in its final form:

• The basic idea: To jump-start housing sales and clear out local unsold real-estate inventories, Congress is offering tax credits to pull in new purchasers.

Buy any house — new, old, any location or condition, any price range within the designated time period — and the IRS will cut up to $7,500 off your tax bill for this year or next.

For example, if you're an eligible buyer of a home this year and you owe the IRS $4,000 on your total 2008 income tax bill, a maximum tax credit of $7,500 could wipe out everything you owe plus get you a $3,500 refund.

The new home-purchase tax credit is what the government calls "refundable": If your tax bill is less than the credit amount, you get the difference back from the Treasury.

• Eligibility rules: Do you own a home now? If so, you're not eligible for the credit. Did you sell your home more than three years ago and now rent? You are eligible. The same is true if you've never owned a home before.

Close on a house before June 30, and you can claim a credit of up to 10 percent of the purchase price of the property up to a maximum of $7,500. If your adjusted gross income exceeds $150,000 ($75,000 for singles), the credit maximum begins to phase down in increments.

You cannot claim the credit if you are an illegal immigrant, financed the property using a state or local housing agency tax-exempt bond mortgage or do not plan to use the house as your principal residence.

• Payback: Unlike some past tax-credit programs, this one requires beneficiaries to repay the credit over an extended period of years.

Starting in the second tax year after purchase and continuing for up to 15 years, taxpayers are expected to make pro-rata repayments to the government on their federal filings.

Over a 15-year payback period for the full $7,500 credit, the cost would be $500 a year.

If you sell the house before the end of the repayment period and you have no gain on the sale, you won't be expected to pay the credit back from the proceeds.

If you have a net gain, the "recapture" cannot exceed the amount of your gain.

In other words, the federal government is taking on all or much of the risk that the value of your new house won't increase over time.

At its core, the new tax credit functions very much like an interest-free loan for up to $7,500. You pay the principal back in increments over time, but there's no interest charge to you.

Rob Dietz, an economist for the National Association of Home Builders, says the new credit not only will pull first-time buyers into the market but will also have a powerful "multiplier effect" as thousands of sellers of these credit-assisted houses go out and buy replacement homes for themselves — extending the impact into the move-up segment.

How do you claim the credit? If you pass the eligibility tests and buy before June 30, 2009, you simply request the credit on your tax return for 2008 or 2009, which will be modified for that purpose.

Even if you purchase in 2009, you can take the credit against your 2008 taxes by filing an amended return.

The homebuilders association is launching an educational Web site, www.federalhousingtaxcredit.com, with additional information for consumers.

Kenneth R. Harney: kenharney@earthlink.net