First Time Buyer Alert, Part 2

As I wrote in the July Market Report, Congress passed the new American Housing Rescure and Foreclosure Prevention Act to help spur activity and encourage buyers, and particularly first time buyers, to take the homeownership leap. Besides providing a tax credit of up to a $7,500 (10% of the purchase price) for home buyers, what are some of the other considerations to keep in mind?

According to the Wall Street Journal:

s The full credit is available for those taxpayers making less than $75,000 ($150,000 if filing joint)
s  Buyers cannot have owned a home as their principle residence in the past three years before buying a home
s  Income is limited to $75,000, phasing out at $95,000 ($150,000 phasing out to $170,00 for joint filers).

Effectively, it's a 15-year no interest loan with payments of $500 per year for 15 years.

If you claim the credit, you'll start paying it back beginning the second year after you purchase the home at a rate of $500 per year. So if you buy a home this year, claim the credit in 2009 on the 2008 tax return, you'll start paying it off in 2011 on your 2010 return.

There are plenty of caveats according to CNNMoney.com. Buyers don't get the money up front, only after filing their return the following year, and they may spend the nest egg instead of socking it away. Plus it must be paid back in full when the home is sold, unless it's sold at a loss.

So there is a lot to consider when contemplating whether to take advantage of this tax credit. Weigh the options, consult your accountant, and make the best decision for your particular situation.

Read First Time Buyer Alert, Part 1