The new economic stimulus package changes the rules for tax credit for first-time home buyers.
In 2008, Congress enacted a new law that gave first-time home buyers a maximum tax credit up to $7,500 on the purchase of a primary residence. Individuals with income below $75,0000 and married couples with income below $150,000 were eligible. The one catch is that the credit was actually a no-interest loan from the IRS that had to be repaid over a 15-year period.
In the new bill, the credit is raised to a maximum of $8,000 or 10 percent of the purchase price—whichever is lower—but the good news is that you no longer have to treat the credit as a loan. There is no repayment requirement. (But if you bought your first home in 2008 and claim the credit, it will still be treated as a no-interest loan that must be repaid.)
This tax break is for first-timers who buy their home in 2009. If you have money for the down payment, intend to stay in the home for at least five to seven years and your credit score will qualify you for a great fixed-rate loan, then this is a good time to think about purchasing a home. But take your time and buy only if you truly expect to stick around for a while; as I explained in the Action Plan book it is unlikely we will see any big rebound in real estate for a while. So buy with a long-term perspective. This nice first-timer tax credit should just be the icing on the cake, not a reason in itself to buy.