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Housing Bill Home Buyer Credit Comes With Strings

Homebuilders, real estate professionals and the mortgage industry cheered the late-July passage of a housing stimulus bill in the House of Representatives. Homeowners and potential buyers, however, are still wading through the legislative lingo to see just how consumer-friendly the package will be.

Among the bill's bigger-picture reforms are loan limit changes for Freddie Mac and Fannie Mae, an FHA foreclosure rescue, seller-funded down payment assistance programs, and other housing market financing stimulus that the bill's backers hope will restore some calm to borrowing markets.

But the bill's key component for consumers, say lending and tax experts, is a $7,500 homebuyer tax credit. It's a welcome change by most accounts but not free of rules and limitations. (The credit is temporary and may not be renewed at its June 30, 2009 expiration.) First, the credit, 10% of the purchase price of a home up to $7,500 in the first year, is available for qualified home purchases between April 8, 2008 and June 30, 2009. Only those individuals making less than $75,000 and couples making less than $150,000 annually qualify. The credit is available to individuals or couples who haven't owned a principal residence for three years; vacation homes or timeshares don't disqualify their owners.

The credit must be paid back over a 15-year period that kicks in during the second year after the taxable year during which the house is purchased.

The credit is, in effect, an interest-free loan, says trade group National Association of Realtors. One bonus, says founder Eva Rosenberg is a home purchased before July 1, 2009, can be reported on a 2008 return, allowing the filer to get the refund a year early.

Keep in mind, however, people who don't normally file a tax return, seniors living on Social Security for instance, will have to file to qualify for the credit. Any of the Internal Revenue Service late filing or non-payment penalties will apply.

If the house is sold in under 15 years, the credit must be repayed, the exception is when the homeowner dies, writes Rosenberg. Divorces or other emergencies are covered under special provisions.

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Rachel Koning Beals has written about credit, real estate, personal finance and investing for 14 years.

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