There is hope for first-time homebuyers

October 09, 2008

During the past few weeks, Americans have seen their savings and investments plummet to near-frantic levels even as Congress approved the most aggressive financial rescue scheme ever conceived.  Coupled with a prolonged and dramatic decline in real estate values, surely these are "times that try men's souls."  However dismal the outlook seems, first-time homebuyers could not have hoped for better circumstances, said Rick Marmon, a tax law professor in the Rohrer College of Business at Rowan University, Glassboro, N.J. With the Federal Reserve cutting rates to their lowest levels in more than four years, the 30-year rate on mortgages is now below 6 percent and falling.  Adding to these low real estate prices and interest rates is Congress' recent passage of the Housing Assistance Tax Act of 2008, which provides for a first-time homebuyer credit of up to $7,500 for the purchase of a principal residence made between April 9, 2008 and July 1, 2009. 

Individuals who have modified adjusted gross income (AGI) not exceeding $75,000 (or $150,000 for joint filers) and who have not owned a home within three years of the date of purchase may receive a refundable amount equal to 10 percent of the purchase price of the property - this means cash in the pocket even for those with no tax liability.  There is also a provision that allows for purchases made in 2009 to be treated as having been made in 2008, so that homebuyers may access cash immediately through an amended filing, rather than claiming the credit on their 2009 tax return.  The credit is phased-out for taxpayers whose modified AGI exceeds the threshold amounts and is not available once modified AGI reaches $95,000 (or $170,000 for joint filers).

Unlike most other refundable credits, there is a catch to the first-time homebuyer credit: it must be repaid.  The credit acts more like a non-interest-bearing loan requiring repayment amounts of up to $500 per year beginning with the second tax year following the tax year of purchase.  If the house is sold before the end of the recapture period of 15 years, the taxpayers must include the remaining unrecaptured amount on their tax return for the year in which the sale occurs or the tax year during which the home no longer serves as a principal residence.  The recapture amount is limited to the gain on the sale of the home to an unrelated person and does not apply in the event of the taxpayer's death, to transfers between spouses or to a former spouse incident to divorce.

With mortgage rates falling, declining house values and a new tax credit for first-time home buyers, there may not be a better time to buy a home.

Rick Marmon is a tax law professor at Rowan University.  He is a CPA, CMA, MBA, JD and licensed attorney in N.J. and Pa.  Marmon currently is completing an LLM degree in taxation at Villanova University School of Law. Rowan's Rohrer College of Business holds accreditation by AACSB International, offers an MBA degree (on-campus and on-line) with specializations in accounting, entrepreneurship, finance and management and undergraduate business majors in accounting, entrepreneurship, finance, human resources, management, marketing and management information systems.   Visit  http://www.rowan.edu/colleges/business/ for more information.

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