As a first-time homebuyer, now is the perfect time to take advantage of the $7500 Federal tax credit and the buyer's market that we are currently in.  In case you haven't heard, a new housing rescue bill was passed last July.  The Housing and Economic Recovery Act of 2008 was designed to encourage first time home buyers to purchase their first home, which in turn of course helps to stimulate the economy.

 How the Tax Credit Works

• The tax credit is 10% of the home's sale price with a maximum of $7,500.
• You can claim the credit on taxes filed in 2008 or 2009.
• It's a credit and not a deduction.
• It's refundable, so if your tax liability is less than the credit, you can get the money back.

Qualifications of the First Time Homebuyer Tax Credit

• The home must be used as a primary residence.
• Eligible taxpayer must not have owned a primary residence within the past three years. Both individuals of a couple must not have owned a home in the last three years.
• Cannot buy the home from a close relative.
• Must have an annual MAGI (modified adjusted gross income) of less than $75,000 or $150,000 as a couple to qualify for the full amount.
• Cannot sell home before the end of 2009.
• Cannot be a nonresident alien as outlined by IRS in Publication 519.
• Home must be closed between April 9, 2008 and July 1, 2009.

 Tax Credit Loan Repayment Terms

 The $7500 tax credit isn't really a tax credit; it's really an interest free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years (so if your credit was $7500 you would repay $500 per year on your tax returns). When you sell your home, any profits will go first into paying off that loan. If there is not enough equity in the home and you sell at a loss, the difference will be forgiven.

 This tax credit combined with the fact that Salt Lake City area home prices are dropping, interest rates remain very favorable, it is indeed an ideal time for many first-time home buyers to purchase a home.

Go to the Greater Salt Lake City, Utah Real Estate Resource Center for more great information on buying and selling a home in Salt Lake City, Utah.

 Additionally, the questions and answers below are from the IRS website giving further details on this program.

Q. Which home purchases qualify for the first-time homebuyer credit?

A. Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible. You must buy the home after April 8, 2008, and before July 1, 2009. For a home that you construct, the purchase date is the first date you occupy the home.

Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit.

If you make an eligible purchase in 2008, you claim the first-time homebuyer credit on your 2008 tax return. For an eligible purchase in 2009, you can choose to claim the credit on either your 2008 (or amended 2008 return) or 2009 return.

Q. How much is the credit?

A. The credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 for either a single taxpayer or a married couple filing jointly. The limit is $3,750 for a married person filing a separate return. In most cases, the full credit will be available for homes costing $75,000 or more. Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Q. Are there income limits?

A. Yes. The credit is reduced or eliminated for higher-income taxpayers.

The credit is phased out based on your modified adjusted gross income (MAGI). MAGI is your adjusted gross income plus various amounts excluded from income-for example, certain foreign income. For a married couple filing a joint return, the phase-out range is $150,000 to $170,000. For other taxpayers, the phase-out range is $75,000 to $95,000.

This means the full credit is available for married couples filing a joint return whose MAGI is $150,000 or less and for other taxpayers whose MAGI is $75,000 or less.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a main home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
• You stop using your home as your main home.
• You sell your home before the end of the year.
• You are a nonresident alien.
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year.
• Your home financing comes from tax-exempt mortgage revenue bonds.
• You owned another main home at any time during the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

Q. How and when is the credit repaid?

A. The first-time homebuyer credit is similar to a 15-year interest-free loan.  Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer's income tax return for that year.  For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.

You may need to adjust your withholding or make quarterly estimated tax payments to ensure you are not under-withheld.

However, some exceptions apply to the repayment rule. They include:

• If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
• If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
• If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
• If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.