$7500 Tax Credit for First Time Home Buyers
The title is correct! This is a first time home buyer tax credit - not a deduction - but an actual credit on your taxes. If you owe $0 on your taxes otherwise you would actually get $7500 back to do with as you please. You could pay off a loan or credit cards or spend it on furniture for your new house. If you buy a house between Apirl 2008 and July 2009 and have not owned a home in the last 3 years you are probably eligible. I do see this as a great thing but there are several stipulations you should be aware of before you get too excited. It is a credit but there are strings attached!
1) It is really an interest free loan. 2 years after you receive the tax credit you must start paying it back at the rate of $500 per year for 15 years. This kind of puts a damper on the excitement but where else can you get an interest free loan for 15 years.
2) If you sell your house before the 15 years is up you must pay the money back out of your profits. If you don't have any profits then the debt is forgiven. No profit - no pay back.
3) If you die your heirs are off the hook and do not have to pay the loan back.
4) It is based on 10% of the purchase price up to $7500 so you must buy a home with a price tag greater than $75,000 to receive the full benefit.
5) There are income limits. The credit begins to be reduced if you are single and make more than $75,000 per year or if you are married and the couple makes more than $150,000 per year.
It does seem like a great thing for first time home buyers if the money is used wisely like to pay off outstanding credit card debt. The down side could be if a recipient wastes the money and then basically has an additional $7500 in debt. It is all in how you use the money!