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Some Crofton Homebuyers Eligible for $7,500 Tax Credit

You are probably eligible to benefit from this economic stimulus on your tax return this year if you purchased Crofton real estate and settled after April 8, 2008, provided you did not own a home during the three years preceding that.

The amount of credit is not automatically $7,500, but it’s 10% of the home purchase or $7,500 (whichever is greater).  Since there are no homes priced below that threshold in this area, it’s safe to assume you’ll receive the entire amount, unless you co-purchased it and the amount is divided between purchasers. 

Tax form“Credit” is what they’re calling this economic stimulus, but it’s a bit of a misnomer.  Actually, it operates more like an interest-free loan than a grant/gift because the tax credit must be repaid over a 15–year period, beginning the second year after claiming it.  In other words, you’ll be adding $500 to your tax bill for fifteen years, once the repayment begins.

Still, it is like an interest-free loan that you can invest or spend on home improvements, tuition, or anything else, since there are no restrictions on using the credit.  

There are a few details you need to be aware of:

1.  The obligation for repayment is cancelled in the event of your death.

2.  You will be obligated to pay the entire remaining balance upon the sale of your home OR if it’s no longer your primary residence.  If you don’t expect to own your home for seventeen years, this is important for you to remember.

3.  If you transfer ownership to a spouse as part of a divorce settlement, he/she will be responsible for tax credit repayment.

4.  Unmarried co-buyers may allocate the tax credit in any “reasonable manner.”

Other restrictions and guidelines also apply, so be sure to visit the IRS Website and read their instructions for this tax credit.

To receive this credit on your 2008 federal tax return, you must file the new IRS Form 5405.  

Even if you’re still renting, you can benefit from this economic stimulus on your 2009 federal tax return by purchasing a home before July 1, 2009.  If you’re on the fence about buying in the coming year, perhaps this tax credit will encourage you to move forward in the next few weeks.

As a REALTOR, I don’t pretend to be a tax expert, so be sure to verify this information with your own tax-preparer.

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