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Our main blog has been moved to chicagonow.com/getting-real
but we occasionally post articles here as well.

How The $7,500 Tax Credit Works

October 26th, 2008 by Sari Levy

Article reprinted with the permission of Geno A. Tucci, Sr.

The government is offering a credit of up to $7,500 for First Time Homebuyers who purchase a new primary residence between April 9, 2008 and July 1, 2009. There is a misconception that these funds are a grant, they are not. In fact, itʼs a loan from Uncle Sam but it is interest free.

When you file your tax return youʼll get a tax credit, which is applied to your income tax filings and you get a bigger refund or you owe less taxes. Although, at the onset it may seem more complicated than itʼs worth, it is actually quite simple and is a great way for new homebuyerʼs to get some cash on hand just after the big purchase. Let me try to simplify it further.

To start, the program is only offered to folks who make $75,000 maximum earnings per year if filing single, or $150,000 if filing jointly. If your income exceeds this there may still be the possibility of a partial credit, but nothing if you make more than $95,000 per person per year.

To get the credit you would close on the property as usual. Then come tax time, if you fit that income bracket, you claim the available $7,500 credit on your tax return. For example, if you owed $1,000 on your federal taxes normally, your return would be $6,500. If you were getting $2,000, you would instead get $9,500.

Going forward, over the course of the following 15 years you would pay back the credit, remember interest free, as part of your tax filings. The figure comes out to roughly $500 due per year. This works the same way, at tax time if you were getting back $1,000 normally, you would instead get $500, and pay back the other $500 towards the annual principal owed.

Something to consider is that in the event that the property is sold before the 15 years, the balance would be due at the time of sale. However, if there is no appreciation the loan is forgiven. Likewise, if the property is converted to a rental or investment property the outstanding balance of the loan would be due at the time of conversion.

This and other government programs exist to help homeowners. The trouble is that homeowners and especially new homebuyers arenʼt made aware or are often times confused by these programs. 

Please feel free to contact me for more information on this or any other loan related issues:

Geno A. Tucci, Sr.
630-640-5031 (cellular)

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