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How to Fire your landlord, buy a house and make $7500!

Hello there! Thanks for stopping by today. I’ve been talking much about the new first-time home buyer’s tax credit. Before I get a phone call from an angry reader who complains that the Housing and Economic Recovery Act’s $7,500 tax credit to first-time buyers is a sham, I’d like to explain more about this excellent opportunity.

This $7500 tax credit is part of a newly passed bill. When reviewing the overall bill, part of it is very good and the other part of it is just a band aid. For a first-time home buyer, the tax credit is a good thing because it’s really not a tax credit; it’s really an interest-free loan. If you look at it from that perspective, it’s a nice incentive for first-time home buyers or people that need some assistance in purchasing a home.

Yes, the tax credit technically is a zero-interest loan that you will repay to the government over 15 years, starting two years after the credit is claimed, at $500 a year.

If you sell the house, you repay the entire amount if there was enough profit to do so. If not, the amount that you don’t repay is forgiven.

So, why isn’t it a gift? You already got a gift this year with the economic-stimulus payment. You think the federal government has a lot of money to spare? Look at the record deficit and tell me Uncle Sam has deep pockets! Think of it this way, if the money didn’t have to be repaid or the credit were made a permanent feature of the market, the asking price of houses would be driven up $7,500 by sellers who knew the buyers would be getting it back anyway.

The law is designed to stabilize prices so that values will rise naturally. Raleigh real estate and Cary real estate and the Triangle market as a whole will benefit greatly from this new bill and incentive.

The $7,500 tax credit is available to first-time buyers (defined as those not having owned a primary residence for three years before the purchase) who close on the sale of a house between April 9, 2008, and July 1, 2009. The house must be the buyer’s principal residence. If you are married and file jointly, the credit is available only if neither you nor your spouse owned a primary residence in the previous three years.

The maximum” credit is $7,500. You will qualify if you are a single taxpayer with a “modified adjusted gross income” up to $75,000, and married taxpayers with incomes up to $150,000, qualify for the full credit.

According to my accountant, before you figure what your “modified adjusted gross income is, you first must determine your adjusted gross income.

The adjusted gross income is your salary, plus interest income on savings accounts, stock dividends, tips if you’re a waiter, and rental income on that Shore house you own, added together and appearing on the last line of the first page of Form 1040.

This is the amount before deductions. The adjusted gross income is modified, for example, by any deduction for a regular contribution to an IRA, for student-loan interest or qualified tuition and related expenses, or interest from Series EE bonds that you were able to exclude because you paid qualified higher-education expenses.

If your income exceeds the limit, you may be eligible for a partial tax credit.

The example given is this: An individual buyer has a modified adjusted gross income of $88,000, exceeding the limit by $13,000. Dividing $13,000 by $20,000 yields 0.65. When you subtract 0.65 from 1.0, the result is 0.35.

Multiply $7,500 by 0.35. The buyer is eligible for a partial credit of $2,625.

The tax credit is refundable. That means you can take the credit if you have little or no federal income-tax liability to offset. The feds will likely send you a check for part or all of the credit.

If you buy a house in 2009, the IRS will let you claim the credit on your 2008 tax return. Thus you have the option of figuring out in which tax year the credit will do you the most good.

I hope this gives you a better understanding of this new bill. If you or anyone you know is currently renting verse owning a home, please ask them this question: “What kind of incentive would make you STOP paying someone else’s mortgage? This may be the perfect option and it will not last forever. Call us today @ 781-9883 x 227. I look forward to hearing from you.

Thanks for stopping by today. Take Care and God Bless.

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