The Housing and Economy Recovery Act of 2008 was signed into law. One of the main points is the $7,500 tax credit to qualified first time home buyers. Not to mention, if you haven’t owned a home in the last three years, you can still benefit!

If you buy a home before the end of next June (June 2009) than you can deduct as much as $7,500 off of your tax bill! That’s actually off of your tax bill and not off of your taxable income. If, at the end of the year, you owe the IRS $7,500 (and you bought a home for the first time) the you’ll owe the IRS zero. Or, if you owe the IRS $500, then you’ll owe them zero, PLUS you’ll get another $7,000 in a refund.

Now of course, there are a couple of catches (not surprised):

• The tax credit is actually a loan from the IRS. Meaning, that you’ll have to pay tht $7,500 back over a 15 year period, but it’s interest free.
• The $7,500 is reduced to $3,750 if you file your taxes “single”
• If you own a home now, then you’re not eligible for the tax credit. If you’ve owned a home in the past, but rent now (and haven’t owned a home in the past three years), then you qualify. Also, if you’re a first time home buyer, you’ll qualify.
• The amount of the tax credit is actually based on the amount of the home – 10%. If you buy a $100,000 home, you won’t get $10,000. Likewise, if you buy a $50,000 home, you’ll get $5,000 – the tax credit is capped at $7,500.
• If you’re married and your adjusted gross income is more than $150,000 a year ($75,000 if your single), the tax credit will begin to phase down.
• You can’t get the credit if the home is not your personal residence.
• You won’t qualify if you financed the home using a state or local housing agency’s tax-exempt bond mortgage

In reality, the tax credit is a loan (interest free) from the government and you’re expected to pay it back.

If you buy a home under the Housing and Economy Recovery Act then sell your home later and make a profit, then you’ll have to pay back the remainder of the balance of the “tax credit loan” you received. The recapture cannot exceed the amount of your net gain. Likewise, if you have no net gain on the sale of the home, then you won’t be expected to pay back the remainder of the balance from any proceeds of the sale.

Confusing? Can be. If you need more info, try these links:

FAQ from Realtor.org
HUD FAQ
Summary

The basic idea behind The Housing and Economy Recovery Act, is to jump start home sales and clear out the inventory of unsold homes. Congress is trying to encourage first time home buyers and previous home owners to purchase properties and become homeowners.