Rob's Rant

Today's post about the Federal Housing Financial Reform Act of 2008 will be about the Tax Incentive portion of the Act.

Who Qualifies?  First-Time Homebuyers.  Oddly enough, this does NOT mean you cannot ever have owned a home before!  If you have not owned Real Estate (including investment homes, Timeshares, land) in at least 3 years, the law considers you a First-Time Homebuyer.

How much is the Credit?  Up to 10% of the sales price of your new home.  The caps are as follows: $3750 per person or $7500 per married couple.  There is also an income cap of $75,000 annual income per person, or $150,000 annual income for a married couple.

How does it work?  This is a Tax Credit, not a Deduction.  So what that means is you are not simply deducting this off your income (like you would for Mortgage Interest or Property Taxes, as two examples).  You take this off your overall taxes paid at the end of the year.  If you & your spouse purchase a $75,000 (or more) home and make less than $150,000, your tax credit should be $7500.  When you file your 1040 Tax Return, Uncle Sam will refund to you that $7500 you paid in over the year--over and above any refund you already would be receiving.  Pretty nice!

What's the catch?  There always is a catch, isn't there?  Here is the catch on this: You have to pay it back at Zero Interest, over the course of the next 15 years.  So in the example of $7500, you would pay back $500 per year to Uncle Sam until the debt was paid.

Anything else we should know?  Yes!  Be careful if you plan to occupy this new home for a brief period of time.  Should you decide to sell, or even move out and rent your home, this event will cause the entire remaining amount you owe Uncle Sam to be due and payable.  Say, after 3 years you have paid back $1500 of the $7500 you took as a Credit.  You decide to rent the place out & buy something bigger.  You should be prepared to write a check to Uncle Sam for the remaining $6000.

If you are a First-Time Homebuyer, or know someone who is, you should strongly consider taking full advantage of this Act.  It technically is not "Free Money".  But it IS an Interest-Free loan from the Federal Government--which in my mind is the next best thing.

Note the Act states the purchase must take place BEFORE July 1, 2009.  Don't wait!

Remember I am not a CPA or an Attorney.  Please do not construe anything I say to be Tax or Legal Advice.  You should consult one or both of these experts to see how this applies to your specific circumstance.  If you do not know any good CPAs or Attorneys, please contact me.  I would be happy to refer you.