The $7,500 Housing and Economic Recovery Act tax credit

The latest BUZZ , first time buyers buy now and get $7,500 tax credit. Let's take a closer look at that. Under a microscope this might not be for everyone and everyone might not qualify.

Qualifying for the Credit

First of all you need to check with you tax adviser to see if you qualify for this credit. Certain rules apply:

1. Only the purchase of a main home located in the U.S. qualifies and only for a limited time.
2. Vacation homes and rental property aren't eligible.
3. You must buy the home after April 8, 2008, and before July 1, 2009.
4. For a home you build, the purchase date is the first date you occupy the home.
5. Taxpayers who owned a main home at any time during the 3 years prior to the date of purchase aren't eligible for the credit. This means that first-time home buyers and those who have not owned a home in the 3 years prior to a purchase can qualify for the credit.

Currently the credit is 10% 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.

**Important note: Whatever the size of the credit a taxpayer receives, the credit must be repaid over a 15-year period.

Income Limits Apply

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 (i.e. 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.

Dis-qualifiers:

If any of the following describe you, you can't take the credit:

• 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 home buyer 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.

Your credit is similar to a 15-year interest-free loan. Normally, it's 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.

Again, other exceptions apply so you need to ask your tax adviser if this tax credit is right for you.

• What happens if you die.
• What happens if you stop using the home as your main home.
• What happens if you sell your home.
• What happens if you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse.