As part of the recently enacted “Housing and Economic Recovery Act of 2008,” Congress has created a temporary income tax credit to provide incentives for individuals who purchase new homes. Essentially, under the new law, a first-time homebuyer is entitled to a credit of 10% of the cost of the purchased home up to a maximum amount of $7500.00. This credit applies to the homebuyer’s tax return for the year following the closing. The homeowner is then required to pay the tax credit back in equal installments for following 15 years.
Under the newly enacted law, the term “first time homebuyer” is broadly defined as any individual who has not owned a primary house at any time during the previous three years. Moreover, individuals whose Form 1040 filing status is “single” are eligible for the tax credit if their income is no more than $75,000.00, and individuals who file jointly may qualify if they have a combined income of no more than $150,000.00.
In addition, the new law increases the length of time a lender must wait before starting a foreclosure action against a veteran returning from service from three months to nine months. It also provides returning veterans with a year of relief from mortgage rate increases. Further, the new law requires lenders to inform borrowers of the maximum monthly payments if their loans were to reach the highest interest rate level possible.
The provisions of the new law illustrate some of the rapid changes occurring in the housing market today as the government responds in the wake of the subprime mortgage crisis. Individuals looking to purchase homes should keep themselves informed of these ongoing changes in the law in order to take full advantage of any new developments that could potentially provide relief.
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