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By now you may have heard about help for first-time home buyers in the Housing and Economic Recovery Act of 2008. I'm not a big fan of this legislation in general, but I still think it's important for consumers to know what it offers and how they can benefit.

If you're a first-time home buyer, the federal government is essentially offering you a $7,500 loan, interest-free, to be paid back over 15 years. Not a bad deal at all!

To be eligible, you must meet the following requirements:
  • Be buying your first home (rental properties and vacation homes purchased in the past don't count against you, but if your spouse owned a home before, that does count against you)
  • Purchase the home between April 9, 2008 and July 1, 2009
  • Not have income greater than $75,000 (single) or $150,000 (married)

If you meet the requirements, you can get a tax credit of up to $7,500 on your 2008 or 2009 tax return, and it's refundable. A tax credit reduces your tax liability dollar for dollar (so it's better than a deduction which would just reduce your income, which is then taxed). Think of this as the government wiping out $7,500 of the taxes you should pay for 2008, and you'll likely get a nice fat refund because of that.

Example: Suppose your tax bill for the year added up to $4,500, and you've already had $5,000 taken out of your paychecks for federal taxes. You'd normally get a $500 refund, the difference between what you really owed and how much you had taken off your checks.

With this $7,500 credit, your tax bill is reduced from $4,500 to ($3,000) -- yes that's a minus -- and you'll be getting back the $3,000 negative balance plus the $5,000 you already paid in through your payroll deductions. That's $8,000 back in your pocket at tax time!

The money isn't totally free, however. You'll have to pay the money back over 15 years, so if you got the full $7,500 credit, you'll be paying $500 a year each year at tax time. Repayment doesn't begin until 2010 for those who take the credit in 2008, and 2011 for those who take it in 2009. Consider the delayed repayment as an extra little bonus.

I can hear consumers now: Why do I have to repay it at all? Why not? No one gave me any free money when I bought my house. And an interest free loan for 15 years is a great deal and a wonderful help to those buying a house. Be grateful for what the government is providing consumers with this program!

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.

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