Buyers get interest-free home loan

A new tax credit that emerged from the recently enacted historic federal housing bill is expected to benefit hundreds of thousands of home buyers.

Couples who purchase a home between April 9 and June 30, 2009, may be eligible for a home purchase tax credit of up to $7,500 against federal taxes for 2008 or 2009. (The credit is $3,750 for persons filing taxes as a single person.)

To qualify, the buyer and the buyer's spouse may not have owned a principal residence in the three years prior to purchase.

For example, an eligible buyer who owes the IRS $5,000 in 2008 income taxes would owe nothing and receive a refund of $2,500.

The tax credit, which must be repaid over 15 years at $500 per year, along with other provisions of the historical federal housing bill and soft resale prices, are expected to lure growing numbers of buyers back into the housing market.

"With more buyers able to enter the market, and greater access to affordable loan products that won’t have home buyers struggling six months down the road to make their payments, we can expect to see more buyers coming back into the market,"€ said William E. Brown, president of the California Association of Realtors.

"€œIncreased access to mortgage capital is a key provision of this measure,"€ he said,"and will significantly improve the options for these first-time buyers here in our state, where home prices remain among the highest in the nation."

Here are answers to a few of the most frequently asked questions:

Is there an income restriction? Yes. The income restriction is based on the tax filing status the purchaser claims when filing a income tax return. Individuals whose Form 1040 filing status is single (or head of household) are eligible for the credit if their income is no more than $75,000. Individuals who file a joint return may have income of no more than $150,000. The credit is phased out so that the closer a buyer comes to the maximum phase-out amount, the smaller the credit will be, which means individuals who earn more than the limits might still receive some tax credit. Check with a tax accountant.

Is the amount of the credit tied to the price of the home?

Yes. The credit is 10 percent of the cost of the home, up to a maximum credit of $7,500. If a home cost $65,000, the allowable credit would be $6,500. If a home cost $120,000, the allowable credit would be $7,500. The amount of the credit is the same for all taxpayers, married or single.

Are there restrictions related to the financing of the mortgage on the property?

Yes. If the financing is obtained by means of mortgage revenue bonds, then the purchaser is not eligible for the tax credit.

For insight on the housing measure and detailed answers to additional questions regarding the tax credit, go online to: http://www.realtor.org/gapublic.nsf/pages/hr_3221_key_provisions?OpenDocument

The Southland Regional Association of Realtors is a local trade serving the San Fernando and Santa Clarita valleys. SRAR is one of the largest local associations in the nation.