The Housing and Economic Recovery Act of 2008 includes a provision to give tax credits to first-time home buyers.  This credit is only available for a limited time and includes the following guidelines:

• Home must have been purchased between April 8, 2008 and July 1, 2009 (If you’re thinking of buying your first home in the next few months, you will still qualify)
• Must be the taxpayer’s primary residence – vacation homes and rental properties are excluded
• Taxpayers who owned a home anytime in the three years prior to the purchase of the new home are not eligible

The credit is ten percent of the purchase price of the home, with phase-outs based on the taxpayer’s filing status. It is limited to $7,500 per single taxpayer or married couple filing jointly, or $3,750 for a married person filing separately.  This credit simply reduces the taxpayer’s bill or increases his or her refund.  However, the credit is actually very similar to an interest free loan because it must be repaid over a 15-year period.  For example, if a taxpayer claims the maximum $7,500 credit on his or her 2008 tax return, he or she would have to pay an extra $500 in taxes until 2023.  Therefore it will be important that taxpayers claiming this credit adjust their withholdings in these years to cover the additional taxes.

*Please note that Congress is currently working on the Economic Stimulus Plan of 2009, which may alter and/or improve the provision outlined above.  For more information, please contact our office or visit www.irs.gov.