Mortgage Banking/Finance - General Finance
QUESTION:
Re: 2008-2009 First-Time Homebuyer Tax Credit. Does the tax credit ($7,500 max.) create a refund if the homebuyer does not owe any tax on their 2008 federal income tax return?
ANSWER:Yes, the tax credit (10% of value of house) offsets whatever the tax owed is when the homebuyer files his or her 2008 income tax returns and will increase the refund if no tax was due. Keep in mind this is really an interest-free loan because the amount of the credit must be paid back in 15 annual installments beginning two years after the home is purchased. The homebuyer receives the benefit of this credit - which might be a refund check - when 2008 tax returns are filed in 2009, not at the time of closing when the extra money would generally be most useful.
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