First Time Buyer Tax Credit - Not in Manhattan

As part of the “Housing and Economic Recovery Act of 2008” that was recently signed into law, Congress has created a new, temporary federal income tax credit to provide an incentive for first-time homebuyers.

At first I was excited I thought this would benefit my first time buyer clients since they define first time buyers as any one who has not owned a primary home in the last three years. In addition, the tax credit is retroactive to purchasers after April 9, 2008. I was excited since I have buyers that fit that criteria.

However, when I looked into it further in my opinion it pretty much is a joke for most Manhattan first time buyers. Highlights of this federal tax credit is as follows:

• The amount of the federal tax credit is for 10% of the cost of the home, up to a maximum credit of $7,500. (Not many $75,000 homes in Manhattan) but $7500 is still a nice credit right? In essence, this is an interest-free loan that enables consumers to receive a tax credit on a dollar-for-dollar basis on their personal income tax return in the calendar year following the year of closing on their home. They begin paying the tax credit back the year after that and make equal installments during the next 15 years. If the homeowner sells the home at any point during the 15-year payback period, then the remaining amount is recaptured, unless they sell the home at a loss, at which point the balance is forgiven.

• e.g., If a home costs $65,000, the allowable credit would be $6,500. If a home costs $120,000, then the allowable credit would be $7,500. If a home cost $1.3 million the average price in Manhattan the credit would still only be $7,500.

Eligibility is for first-time homebuyers only. In this case, a first-time homebuyer is defined as an individual who has not owned a primary home at any time during the past three years, but who may have done so previously. Sounds good!

• Although certain income limits do apply, the amount of the credit is the same for all taxpayers, married or single. Individuals whose Form 1040 filing status is single (or head of household) are eligible for the tax credit if their income is no more than $75,000. Individuals who file a joint return may have no more than $150,000 in income.
• Individuals with incomes between $75,001 and 94,999 (single) or $150,001 and $169,999 (joint returns) are eligible for a partial tax credit.
• Individuals with incomes greater than $95,000 (single) or $170,000 (joint return) are not eligible for this tax credit.

The average income in Manhattan is three times the national average. The national average is $40,000 while the average Manhattan income is $150,000

• The federal income credit can be claimed on one’s individual or joint tax return for the purchase of any single-family home between April 9, 2008 through July 1, 2009.

Single- family home excludes most Manhattan buyers since most homes are condos and coops. (Multi-family Apartments)

This tax credit is required to be repaid without interest in equal installments of 6.67% of the total credit each year for 15 years beginning the year after the tax credit is claimed.
e.g., If a homebuyer claims the $7,500 credit in 2009 on their federal income tax return for a closing that occurred in 2008, then the credit is received in 2009, so repayment begins in 2010 with an annual repayment amount of approximately $500 a year.

While this federal tax credit might help some buyers in the country perhaps some in NYC, I doubt it will help many buyers in Manhattan. Basically it is a no interst loan off your taxes that must be paid back over 15 years. It is not a deduction. If you sell your home it is due back.

With all due respect to Congress the bill is intended to help almost half a million Americans avoid forclosures. Fortunately Manhattan does not have that problem. In Manhattan $7500 won't cut it as a down payment it will barely cover a years maintenance on a studio apartment.

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