A:

The passage of the American Housing Rescue and Foreclosure Prevention Act of 2008 at the end of July 2008 made about $15 billion of tax incentives available to Americans impacted by the mortgage crisis. (See our feature Subprime Mortgages for more on the subprime meltdown.)

The largest implication of this act for first time home buyers is the availability of a refundable tax credit. The tax credit, which functions as an interest-free loan, provides first-time home buyers with up to $7,500 to purchase a residence between April 9, 2008, and July 1, 2009; this amount must be paid back over 15 years in equal installments. In order to take advantage of this provision, home buyers must claim the credit on their 2008 or 2009 tax returns.

However, there are a few restrictions on this credit that must be considered. The credit begins to phase out at the $75,000 income level for single tax filers and at $150,000 for joint tax filers. If two single tax filers purchase a home jointly, the tax credit is split between them.

As lending restrictions tightened after the subprime mortgage meltdown, many buyers were pushed out of the market. This provision in the act is intended to stimulate purchases in the real estate market. By taking advantage of this credit, first-time home buyers will be able to make a larger down payment.

Follow our step-by-step First-Time Home-buyer Guide to help make your homeownership dreams a reality.

RELATED FAQS

  1. How is market value determined in the real estate market?

    Learn how fair market value is determined during a real estate appraisal and how market values are really decided by professional ...
  2. What are the best free online calculators for calculating my taxable income?

    Find out where to locate the best online calculators to determine your taxable income and why it is important to know this ...
  3. Can I get a tax credit from conducting research and development?

    Understand if a company can receive a tax credit from conducting research and development. Learn about the alternative simplified ...
  4. What is the difference between "closed end credit" and a "line of credit?"

    Find out about the difference between closed-end credit and lines of credit, and how both closed- and open-end credit is ...
RELATED TERMS
  1. Chattel Mortgage Non-Filing Insurance

    An insurance policy covering losses that result from a policyholder ...
  2. Zombie Foreclosure

    A situation (or a home in this situation) that occurs when a ...
  3. Fair Housing Act

    This law (Title VIII of the Civil Rights Act of 1968) forbids ...
  4. Deficiency Balance

    The amount owed to a creditor if the sale proceeds from the collateral ...
  5. Construction Loan

    A short-term loan used to finance the building of a home or another ...
  6. Total Annual Loan Cost (TALC)

    The projected total cost that a reverse mortgage holder should ...

You May Also Like

Related Articles
  1. Investing

    Where Are Real Estate Stocks Heading?

  2. Stock Analysis

    Can American Capital Agency Maintain ...

  3. Stock Analysis

    How Two Harbors' Derivatives Work?

  4. Stock Analysis

    How Chimera Investment Bear The Brunt ...

  5. Stock Analysis

    How Are Interest Rates Affecting Annaly ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!