The Tax Credit for Home Buyers under The Housing and Economic Recovery Act of 2008

There is a great incentive for FIRST TIME HOME BUYERS and/or people who have not owned a home in the last three years in the form of a Tax Credit provided by the Housing and Economic Recovery Act of 2008.

How does it work? I will try to make it as simple as possible

1. House must be purchased between 4-9-2008 and 7-1-2009
2. The house must be a primary residence
3. House ownership of spouse will affect your qualification
4. Income: Single: up to $75,000; Joint Filers: up to $150,000 (Singles earning up to $95,000 and Joint Filers earning up to $170,000 can get a partial credit)
5. The credit for Singles and Joint Filers is $7,500. The credit cannot exceed more than 10% of the sales price of the home.
   
6. The credit may be deducted on the 2008 or 2009 return depending on when the house is purchased
7. This credit is deducted from TAXES OWED and not from GROSS INCOME
8. If the credit is more than taxes due, you will get a refund of the credit amount
   
9. This credit is not a gift
10. The credit must be repaid, interest free over 15 years beginning two years after purchase of house
11. If the house is sold, the full balance of the credit must be paid off at the time of settlement

Anyone, who qualifies, should take this credit even if they are going to put the money into savings account. It is interest free and payable over 15 years.

Expectations a Buyer Should Have When Buying a Row House

The first thing to remember when buying a row house is that the property is not new. The next thing to consider is the location. In the city of Philadelphia, what is essentially the same house can be $20,000 or $250,000. It all depends on where it is located.

Now, I would point out the description of the property being sold, and the price. If the property is being touted as A "REHAB", and the price is at the top for the area, you should expect a new rubber roof, a new soil line, up to date electric, GFCI outlets in the kitchen and bathroom, new kitchen with at least a garbage disposal, new bathroom, hookups for washer and dryer, new heater, new water heater, central air, new floor coverings, new paint, new or doors in good condition, a well maintained front and back, an acceptable chimney liner, the yard surface should be sound as well as the walls of the alleyway. Even though the house may be 50 or 100 years old, it should appear to be a new house.

Now, if the property is being sold as a "REHAB" and the price is not at the top of the market, then I would not expect to get a house with the full list above. You may find that there is no central air, the heater or water heater was not replaced, etc.. You should expect that in your first few years of ownership that you will be spending some money to do some of the improvements that were not done by the previous owner. These improvements should not exceed the difference in price between this house and the house described in the above paragraph.

Then, there is the property that needs "UPDATING". This phrase can mean all sorts of things. This property can be the "bargain" or a "disaster". I like, in this group, what I call Grandma's House. It is the property that has been paid attention to by the current owner for the last 30 or 50 years, but has not been redecorated. The systems, the roof, the appliances, the bathroom tile have been continuously maintained or updated, but the house still has drop ceiling and paneling. In this house the paneling and drop ceilings were decorating choices and not put up to cover anything, but perhaps, wall paper. You will find, when you go through this house that is is clean and always has a clean, well organized basement. Even though this house needs work to make it "look" up to date. It generally provides an attractive price and a livable house, which can be updated and decorated as you go.

There is another house that needs "UPDATING". This house is not like the one above. Generally, it is livable, but almost everything is suspect. You may find a 50 year old heater, water stains on the ceilings, old soil lines, out of date electric, and a "real" need to do something about the cosmetics. This house is fine to buy if you get it for a price at the lower end of the area and have the ability to do the improvements, and are aware of approximately what it will cost to do the improvements. Do not buy this house if you think you will not be able to afford the improvements or cannot live through the improvement process. You will be miserable.

Then, there is "AS IS". "AS IS" can mean all sorts of things. It generally means that the seller will not do any improvements or give you a credit as per the results of the home inspection. Some "AS IS" properties are actually in great condition and some are not. I think this is a situation of "Buyer Beware". Even though it is "AS IS", make sure that you have a HOME INSPECTION CONTINGENCY AND A WOOD INFESTATION CONTINGENCY to make sure that you know exactly what you are buying or not buying. If in this situation, the seller has put something in the disclosure like a new roof that does not exist, I would expect at least a partial credit for the roof even if the seller is calling the sale "AS IS". You, however, may not get the credit.

Therefore, when buying your row house consider the following:

1. Location vs. price
2. Condition vs price

Be honest with yourself. Are you a person that is handy? Do you like doing the repairs? Do you mind living through the work process? You must be honest with yourself when making this decision. If you are a first time or second time buyer, make sure you can afford your monthly payment and make sure you can afford to make the improvements that will be needed as you go along.