What the Housing and Economic Recovery Act of 2008 Means to You – Part I

On Wednesday, July 30, 2008, President Bush signed into law the Housing and Economic Recovery Act of 2008 (HERA). It is 694 pages and in lieu of boring you to death I have decided to write a few short summaries of the more important changes that may affect you.

The First-Time Homebuyer Tax Credit is probably of greatest interest and will likely benefit the most people.

First-time buyers will receive a $7,500 tax credit if they purchase a home between April 9, 2008 and July 1, 2009. Notice that the credit it is retroactive.

There are several important nuances here that you should know.

• A first-time homebuyer is someone who has not owned a principal residence during the 3-year period ending on the date of the purchase of a new principal residence.
  
  
• The property being purchased cannot be purchased from a relative.
  
  
• Married couples with incomes less than $150,000 qualify for the entire tax credit. The tax credit phases out for married couples with incomes between $150,000 and $170,000. Couples with incomes exceeding $170,000 do not qualify for the tax credit.
  
  
• A single person with an income less than $75,000 will qualify for the entire tax credit. The tax credit phases out for singles with incomes between $75,000 and $95,000. Singles with incomes exceeding $95,000 do not qualify for the tax credit.
  
  
• Under NO circumstances will the credit exceed $7,500.
  

The tax credit is really an interest-free loan from the government that must be paid back over fifteen years, in increments of $500 a year, beginning the with the taxable year following the taxable year in which the principal residence was purchased.

• If you die, your heirs do not have to pay back the remaining balance.
  
  
• If you sell your home before fifteen years have passed and your home’s appreciation is less than the amount you have to pay back, the loan is forgiven.
  
  
• If you turn your home into a rental or investment property, you must pay back the balance due in that taxable year.
  
  
• If you sell the primary residence before the end of the taxable year in which you purchase it then no credit is allowed.
  

I hope this summary has provided you with an understanding of how this particular section of the Act actually works and how it may apply to you.