Another incentive for us to really start looking at more homes around here is the new $7,500 tax credit available to first time home buyers:
Buyers who have not owned a home in the past three years can take a tax credit worth 10% of a home’s sale price, up to $7,500, whichever is smaller. The credit is good for homes closed on after April 9, 2008 and before July 1, 2009, and can be taken on taxes filed during 2008 or 2009. Even buyers who bought a home before the bill passed, but after April 9, can claim the credit.
Unlike tax deductions, which only offset taxes by lowering taxable income, the tax credit is a straight dollar-for-dollar deduction of your tax bill. So a buyer who would ordinarily pay $8,000 in taxes would pay just $500. Buyers must to start paying back the loan within two years, at a rate of no more than $500 a year for 15 years. When the the home is sold, any outstanding balance will be repaid from the profit; if it’s sold at a loss and the difference will be forgiven.
Although you have to pay it back, it still looks like a good idea that might get more than a few people into the market. I know I would like to take advantage of what amounts to an interest-free $7500 loan from the government, that has very favorable repayment terms!