The Housing and Economic Recovery Act of 2008 that was passed in July 2008 included an added incentive for DC home buyers who purchased property in the District from April 9, 2008 through July 1, 2009.
Now, you can apply for a tax credit of up to $7500 towards a dollar for dollar reduction of your federal tax burden. However, unlike the District's long standing First-Time Homebuyer Income tax credit of up to $5000, this is not a reduction, but a loan that you will have to pay back. Unfortunately, you can't claim both the $5000 and the $7500 credit, so you'll have to choose between the two programs.
Here are the pros and cons of both programs:
New First-time Home Buyer Tax Credit ($7,500):
- You must be a first time homebuyer in DC, and this is defined in this act as someone who has not owned property in DC for the past 3 years.
- The property must be your primary residence.
- Credit is up to $7500, or 10% of the purchase price of your new home up to $7500. Full credit is given to individuals making $75,000 or less and couples making $150,000 or less. If your income is over these limits, you may be eligible of a partial credit.
- You must have purchased your home between April 9, 2008-July 1, 2009
- The credit is an interest-free loan, and must be repaid to the government. It's established to give you a break on your taxes during your first year of homeownership. Re-payment will begin the second year after you claim your credit, and will be repaid in installments of $500/year over 15 years OR if you sell your home prior to the 15 years, the remainder of the loan will be repaid from your equity at closing. If you do not sell your house for a profit, and you sell at a loss of break even, your debt on this loan will be forgiven.
For more information and frequently asked questions, go to these links:
http://www.federalhousingtaxcredit.com/faq.php
The original First-time Home Buyer Tax Credit ($5,000):
- You must be a first-time home buyer. For this credit, a first-time homebuyer is defined as someone who has not owned property in the District for a year prior to their new purchase.
- The property must be your primary residence.
- Credit is up to $5000. To receive the full credit, an individual must make $70,000 or less and a couple must make $110,000 or less. For every $1,000 made above the income limits, $250 is shaved off of the credit-the maximum amount you can make to obtain any credit is $90,000 for an individual or $130,000 as a couple.
- This is a true credit, and not a loan as the new tax credit is organized. So you will not have to repay this credit to the federal government.
For more information, please visit the links below:
http://www.fanniemaefoundation.org/programs/pdf/dctaxcredit_rpt_execsumm.pdf
http://otr.cfo.dc.gov/otr/cwp/view,a,1330,q,594156.asp
Of course, with any tax issue, you should consult with your accountant. There are many factors that can effect your eligibility, and since you must decide between the two programs, you should consult with a professional to be sure you are choosing the right program for you.
Another great article on the two programs can be found at: http://www.washingtonpost.com/wp-dyn/content/article/2008/10/23/AR2008102304029.html
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