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If you bought a house after April 9, 2008 you might be eligible for a tax credit of up to $7,500 on your 2008 federal tax return.  But like all things tax, there are rules and some catches.

1. You still have time! If you have been waiting on the sidelines to buy a house and are eying a bargain, the credit is still available for purchases up to July 1, 2009. This might help you make the decision to jump into home-ownership and take advantage of the lowering home prices.

2. The actual credit is for 10% of the purchase price, to a maximum of $7,500.

3.  The credit is for “first-time home buyers” only. But this doesn’t necessarily mean you can’t have owned a home in the past.  The IRS defines first-time home buyers as those who either have never owned a home, or those who haven't owned a home in the past three years. Based on the April 9, 2008 qualification date, if you owned a home before (but not after) April 9, 2005, you will qualify for this credit.

4. There are income limits.
If you are a single filer and have a modified adjusted gross income (MAGI) of less than $75,000, you qualify for the full credit. If you are single and have a MAGI between $75k and $95k, the credit amount is phased down. If you made more than $95k, you’re plain outta luck. Couples filing jointly must make less than $150,000 for full credit and between $150,000 and $170,000 for smaller credits. Those making more than $170,000 aren't eligible.

5.  You have to pay the government back. Here’s the real kicker. This is not your typical tax credit; the IRS wants this money back. Home owners who take this credit will have to repay the full amount to the government, interest free, over 15 years. There is a two-year grace period, but starting in 2010 you will be liable for a payment of $500 (added to your income tax liability) every year until the full credit is repaid.  If you sell the house before the credit is fully repaid, the balance will be taken from any profit made on the house.  If you sell at a loss, the credit payback will be forgiven. This stipulation does sting, but it is an interest-free loan to you from the government.

As with all things tax-related, the information discussed here is simply a jumping off point.  If you feel you qualify for this credit and are willing to accept the loan repayment boundaries, please be sure to talk to a tax professional about the details and how it can benefit you this year.

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