Many taxpayers - regardless of credit history - jumped last year to take advantage of a $7,500 tax credit for first time home buyers. The advantage of this credit was that it was refundable–even if you didn’t owe $7,500 in taxes you got the whole credit. For example if you owed $2,500, your credit covered that debt and the government cut you a check for $5,000. The downside was that over a 15 year period, the credit had to be repaid.
Then, Congress passed the American Recovery and Reinvestment Act of 2009. This new bill increases the credit to $8,000 and that $8,000 doesn’t have to be repaid. How does this new bill affect those who took the $7,500 credit?
Unfortunately, if you took the $7,500, you can’t take the new $8,000 credit. And you still have to repay the $7,500 back over 15 years. But you don’t have to start repayment for a couple of years, and the value of getting $7,500 at no interest for many years still comes to about $4,000. So while the $7,500 you got may not give you warm fuzzies, it’s better than a sharp stick and still a good deal.
Now for those who have not bought a house yet, there may be all kinds of goodies available to you, depending on your income.
* Mortgage Credit Certificate Programs These create a tax advantage for first-time buyers. It’s pretty much free money if you meet the IRS income guidelines and your home purchase doesn’t exceed a predetermined amount. An MCC allows you to deduct your mortgage interest and adds a 20% tax credit towards your income tax liability. And the lender will deduct that credit from your house payment when calculating your debt to income ratios, qualifying you for a larger loan than you otherwise could.
* A refundable $8,000 credit for first-time homebuyers. And many folks who have owned property in the past still qualify for “first time homebuyer” status. Check here to see if you qualify. Here are the details:
· The tax credit does not have to be repaid.
· The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.
· The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.
· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.
· If you have not filed your taxes yet for 2008 and you close on a home before you do so, you may be able to apply it on your 2008 tax return. Check with a tax pro for details.
* Rural Housing Programs You’d be amazed at what’s considered rural by the USDA. Programs include zero down payment options for qualifying buyers in qualifying areas. And on February 1st, these rates dropped to 4.375%. Check out the details here.
So 2009 brings a lot of good reasons to buy a home. FHA and USDA lending guidelines are fairly liberal, and first timers can catch a lot of breaks from the IRS. When it comes to home buying, the US government loves newbies. Talk about beginner’s luck.
You can start your search by contacting our database of new home loan lenders to request a mortgage prequalification letter from mortgage lenders; if you have a property in mind already, you can request up to four free competing mortgage quotes. If you already have a property, given current low market rates, consider requesting mortgage refinance quotes through our mortgage lender matching service. Good luck!
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(11 votes, average: 5 out of 5)
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I wonder if there will be new tax breaks coming down the pike for those who are not first-time home buyers. It would be great to reward those who are sticking with their original mortgage commitments, despite falling home prices and bail-outs for just about everyone else!
You’re right. At least those who itemize have always gotten the benefit of deducting their mortgage interest and property taxes. But the 63% who don’t itemize never received one of the most important benefits of home ownership. Until recently. Now even those who don’t itemize can deduct property taxes. I’d like to see incentives for investors though. While they were a major cause of the problem they could also be a major help if they’d start buying again.
It’s true however that you had to have bought your house in 2009 to qualify for the 8000? We bought our house in October and I’m fairly certain we don’t qualify, but can still get the 7500.
Sorry, you do get the $7,500. Which is still a pretty good deal. Qualified purchasers who closed in 2008 will not benefit from the 2009 amendments. They’re stuck with the old model, and will have to pay back the credit — more precisely an interest-free loan from the government — over the coming 15 years. However, if you sold your home in a couple of years and didn’t make anything on the deal you wouldn’t have to pay back the $7,500. In that case you get free money
People who buy homes between Jan. 1 and Dec. 1 of this year may qualify for the $8,000, no-repayment credit. But they’ll still have to pass most of the key eligibility tests imposed under the 2008 program.
In my opinion it is a good thing that the government did the stimulus for first time home buyers. BUT they should either make it so everyone is exempt from paying it back or everyone has to pay it back. Not making the 7500 pay it back and then giving everyone else a free 8000!
Hi, Justin,
I hear ya. But, if we took your argument to its logical conclusion, everyone who bought a few months before the $7500 credit went into effect would be saying “I should get it too.” Where would it end?
I guess the $7500 was enough to make buying a good deal for a lot of people. And you’ll still be helped by the $8000 credit too, because if it makes more people get off the fence and buy homes it will dry up the supply somewhat and increase home prices. Which might be even better for you than $500.
Now, if you sell your house in a couple of years (before you have to start making payments back to the IRS) and you don’t make money on the deal, then guess what? You don’t have to pay it back either–and you just got a free $7500.
Well I think that it is crap- I bought my home in October and I should not have to pay that back.
Yes- i think that it is pure crap too. The bill for 2008 should be amended. We did the right thing by buying foreclosed homes, or at least I did, in 2008 and now they flip the coin for 2009 and even give 500 more on top of what we got that is non-repayable? Hey Obama, if your going to push Socialism then might is well push it for everyone instead of some.
This does suck for the homebuyers, like myself, who bought a home in 2008; however, their is a huge difference between when I bought a home in May 08 and January 09… the fact that in 2008 I could actually get the loan. I am happy with the $7500, I just have kept track of the money put into the house as if I was buying it as an investment property. From my understanding, I only have to repay the loan upto the amount of gain on the property. So, even smaller things like replacing a door, re-drywalling a room to bigger things like putting the fence up… I’m saving the receipts of all because each additional cost added to my basis is another dollar that I don’t have to repay. If I didn’t have this “loan” then I wouldn’t care about the little things because of the huge principal residence exemption. Anyways… I guess some things are different in my case because we are remodling the entire upstairs, but anyone who buys a “fixer-upper” I’m sure that fits what this CPA said… “The overriding factor is doing something that improves or enhances the value of your home.”
Excellent points. I think if they really want to get people buying the credit shouldn’t apply only to first-timers. Because in the past it was assumed that once you got over the first-timer hump that subsequent homes would be easier to buy. You’d have the proceeds of the previous home as a bigger down payment, you’d be more established, credit-wise, and further along in your career. Today, you may be lucky to sell your home and not have negative equity, you may very well be starting a new career because your old one no longer exists, and your credit may have taken some hits too. First-timers have all the advantages; I think if we want real stimulus everyone who fits the income restrictions should get a leg up.
I agree with chico, i think it is pure crap too, i was told to hurry and buy before 09′ to get the $7500 loan. which is a good idea, but on the same note i was pressured to close before Jan 1. so I did, I got it done and closed mid december and recieved the loan. and then they come out with a better offer afterwards.. WTF. typical sales pitch right. Hurry and get screwed before we give a better deal. and as for asking where does it end Gina? i know your an expert but, i think it would end with everyone who took up the 7500 loan being exempt with having to pay it back. i could care less about the extra $500 Im just pissed i felt like it was a one time deal to recieve before the end of 08′ and then get a better offer a couple weeks later. I’m going to call the IRS daily to complain. i hope you do too.
I don’t call the IRS. I don’t have 10 hours a day to sit on hold. Besides, your local Congressman(woman) has a lot more to lose than the IRS–you don’t elect the IRS!
The other thing (and I KNOW I’m gonna get crap about this) is that many Realtors (usually the less experienced ones) will ALWAYS tell you “It’s a great time to buy!” even if they are selling swampland in FL and a hurricane is due next week! They said it in ‘07 right before values crashed–wasn’t that a great time to buy?!
The only ones who say otherwise are established enough to have the trust of a lot of clients and work from credibility not BS. Don’t ever let anyone push you for any reason until you talk to your accountant. I’ve even had title people try to shove me into a house I bought that wasn’t even inhabitable yet so they could get their bonus by the end of the month!
Bottom line tho is that if you bought foreclosures and got a guvvie deal 9whichever it was) you didn’t do the government a favor (unless you’re that charitable). You did yourself one and you’ll see that in the future.
Question: I took the $7500.00 tax credit in 2008 and expect that I will move in three years because of my job. I put 10% down on my home and will obviously have some equity in the home in three years. If I sell my home for exactly what the selling price was, will I be exempt from paying back the loan? Or, would the IRS consider me to have made money on the deal because of the equity and the fact that I had the ability to put down 10%. Thanks
Hi Adam,
First, whatever down payment you made is irrelevent. The gain on your sale is determined by the proceeds of the sale less the acquisition. So if you paid 200k for the home and added 10k more in improvements, plus incurred $7000 more in closing costs etc you’d have to clear $217k before you have any gain at all to repay. So I wouldn’t worry unless your neighborhood is increasing in value very rapidly. Good luck and thanks for writing.
Hi there,
Thanks for all the great info. I had one question: I understand the point of the new 2009 first time home buyers stimulus of $8,000. It is to stimulate new investments by helping people with down payments on homes in our current market. With credit tightening, buyers are actually required to put something down on a house (go figure that one!). So what is the point of the stimulus for people that already bought their homes last year. I am not complaining about it, I am one of them that got the $7,500. But the only thing I can figure that would be a reason is to protect buyers from their home depreciating in the last 8-12 months. What other purpose does this serve? Just want to know before I decide where to put this money; probably in a safe investment like a Treasury bond or TIPS.
What if in two years, I want to buy a bigger home to live in and rent my current home? How does that work as far as the payback?
I believe the payback applies as long as you own the home and is not dependent on whether you live in it.
The problem in my opinion with people being allowed to use the $8,000 for a down payment (FHA was going to try it but suspended the program) is that the whole subprime problem and FHA defaults too began when builders and other parties were allowed to contribute the down payments. A study by HUD found that borrowers pretty much equal in every way were far more likely to blow off their mortgages if they had nothing down than those tho put up even 2%. It makes a huge difference. And as tax payers, do we really want to give these guys down payments, allow them to walk away if it doesn’t work out, and stick us with another bill?
I guess it’s kind of like the reason why my grades went up so much when I went to college and had to pay for it myself…..
Question: When you are selling your house, does it matter the loan amount(including closing costs) that you clear for repaying the tax credit or what we paid only for the house? What if what we paid for the house is less than what the house is worth? My husband is military and we bought a house a year ago and now we have orders to japan for the next three years. So we are trying to sell.
Thanks
Question: I closed on my home in August of 2008 and took the $7500 tax credit. It was a long commute to work and I have back problems. I fell at work and making the existing condition worse and finall had to get a studio across the street from where I work in 2009. The value of my condo also dropped by 20,000. My question is can I rent it out without having to pay back the credit to offset the cost now that I have rent and a mortgage payment. It won’t be long before I am out of savings.
Thanks, Blake
Question Cont’d: I wanted to add that I bought the condo for 149K and got a piggy back loan for the down payment so I ended up owing 157K - The homes in that area are dropping in value about 1% per month. So the place is now has, I guess you’d call it negative equity as it is now worth less than I paid for it and it looks like that will not change any time in the foreseeable future.
Thanks again for and suggestions,
Blake
I agree I feel like I did the right thing and went out and bought a house bc it was the right thing for me to do, not to get 7500.00 and now people are buying houses to get 8000.00 and its free money and I get to start paying my 7500.00 back next year …whats wrong with this and what should I do….call or write???
There isn’t much anyone can do. It’s kind of like people who buy a car with a $3,000 discount and then Cash for Clunkers comes along with $4500. But those who were okay with $3,000 already bought their cars. It’s a risk you take when you buy anything–I got plane tickets for $500 and a week later I could have bought them for $120. When a deal seems good you have to take it; I would have done the same in your shoes.
Actually gina, I believe if you rent out the home you purchased in 2008, you have to pay back the 7500 immediately. I’m just finding myself in this predicament.
Question, I applied for the 7500 tax credit and have not received the check as of yet. It has been 4 months I was wandering that if I file my 2010 taxes will I have to pay the 500 back even if I have not gotten the check yet? I called the IRS 3 times they say still processing.
Question, we got the 7500 tax credit and my husband is in the army we got orders and had to sell are house because the gov moved us. what will happen this year when we do are taxes?
i signed the contract on january last signature of the house contract but lady at the income tax said i was going to qualify for 7500 why is that
2009 was the year 29 of january
Rudy,
Sorry I did find that out ages ago when I answered another question but didn’t put that in the blog; I put it in an article instead. Hope if didn’t cause any confusion.
My wife and I didn’t build and buy our house just to get or becuase of a tax “credit”, but any money is good money, I guess? The timing was the right timing for us. A month later though things change and everybody gets 8-15K FREE. Now we still owe? What gives.