There is a lot of hype circulating about the new law passed a few months ago through the Housing and Economic Recovery Act of 2008. The law passed is a tax credit that will be available to First-time Homebuyers, up to $7,500. The idea is that it will help people afford their first home and in turn stimulate the economy, hopefully building confidence once again in the American Dream.

While initially the tax credit sounds like a great deal there are a few restrictions and limitations in the fine print. Below we will review the basic outline for qualifying for this credit.

First-Time Home Buyer: A buyer who has not owned a principal residence for the past three years. If you are married and you haven’t but your spouse has owned a residence within the past three years, you will not qualify.

Date of Purchase: The home must be purchased between the dates of April 9, 2008- July 1, 2009. You may claim your `09 purchase on your `08 taxes.

Maximum Credit Amount: A buyer’s credited amount is based on the cost of the home purchased. The credited amount is 10% of the cost, not exceeding $7,500. So while you may purchase an $875,000 home, your credit will only be $7,500.

Income Restrictions: A Single taxpayer with incomes up to $75,000 qualifies. Married couples with incomes up to $150,000 qualify. If you are above the income level, you will not be eligible for the full $7,500 but you may still qualify for partial credit.

Sounds good right? With all good things there is a catch…

Re-payment:Yep that’s right. You must repay this money. The good news is that you do not get charged interest on this credit and it can be paid back in easy annual installments. You will pay the government back in 15 equal payments over the next 15 years (beginning 2 years after credit is taken).

Essentially this tax credit is an interest-free loan from the government that must be paid back over a period of 15 years. While it may be that all good things come with a catch, all things considered, this one is worth it.

What do you think? Is the tax credit a good or bad incentive? Are you advertising it to your customers and if so, how are people responding to it? Is it enough? I’d love to hear your thoughts…

Have more questions…need more answers? Check out these websites for more information:

http://www.federalhousingtaxcredit.com/index.html

http://www.irs.gov/newsroom/article/0,,id=186831,00.html