Maryland Real Estate Update

Feature

H.R. 3221

Housing and Economic Recovery Act of 2008

Amount of Credit

Ten Percent of the cost of home, not to exceed $7500.

Examples: 

Ø        If a home costs $65,000, the allowable credit would be $6,500.

Ø       If a home costs $120,000, then the allowable credit would be $7,500.

Eligible Property

Any single-family residence (including condos) that will be used as a primary residence.

Refundable

Reduces income tax liability for the year of purchase.  Claimed on tax return for that tax year.

Individuals should consult a professional tax advisor for exact tax calculations.

Examples:

Ø        If an individual’s actual tax liability was $5,000, then after the tax credit is applied the purchaser would receive a total refund of $2,500. The refundable amount is the difference between the $7,500 tax credit and the amount of one’s tax liability.

Ø       If an individual’s actual tax refund was $2,000, then after the tax credit is applied the purchaser would receive a total refund of $9,500.

Income Limit

Individuals whose Form 1040 filing status is single (or head of household) are eligible for the tax credit if their income is no more than $75,000. Individuals who file a joint return may have no more than $150,000 in income.  Individuals with incomes between $75,001 and 94,999 (single) or $150,001 and $169,999 (joint returns) are eligible for a partial tax credit.  Individuals with incomes greater than $95,000 (single) or $170,000 (joint return) are not eligible for this tax credit.

First-time Homebuyer Only

Purchaser (and purchaser’s spouse) may not have owned a principal residence in three years previous to purchase.

Recapture

A portion (6.67% of credit) is to be repaid each year for 15 years.  If home is sold before 15 years, then remainder of credit is due in the year of the sale. 

Ø        If a homebuyer claims the $7,500 credit in 2009 on their federal income tax return for a closing that occurred in 2008, then the credit is received in 2009, so repayment begins in 2010 with an annual repayment amount of approximately $500 a year.

Ø        If the homeowner dies, their heirs do not have to pay back the remaining balance.

Ø        If the house is sold before fifteen years have passed and the home’s appreciation is less than the amount needed to be to paid back, the loan is forgiven.

Ø       If the home is turned into a rental or investment property, the pay back balance is due in that year. 

Effective Date

Purchases on or after April 9, 2008 until July 1, 2009