Harper Pledges Tax Credit For First Time Homebuyers

by Mike Godfrey, Tax-News.com, Washington

19 September 2008

Canadian Prime Minister Stephen Harper on Tuesday pledged that if the Conservatives are re-elected next month, they will provide first-time homebuyers with a tax credit of up to CAD5,000 of the closing costs on the purchase of a new home.

Explaining the reasoning behind the proposal, a statement from the party suggested that:

"Many first-time homebuyers are surprised by the long list of closing costs, including land transfer taxes, inspection fees, appraisal fees, and legal fees. These can amount to between 1.5% and 4% of the purchase price. The tax credit will help first-time homebuyers to avoid stretching too far beyond their budget to meet these unexpected costs."

“In a time of rising-prices and global economic uncertainty, government should be doing what it can to protect our standard of living, for construction workers and their families, for first-time homebuyers, and for all Canadians,” added the Prime Minister.

The proposed tax credit would be phased in over four years, and would aim to reduce first time homebuyers’ tax payable by 15% of their eligible closing costs, up to the aforementioned CAD5,000 limit.

The Canadian authorities are not the only ones with an eye on assistance for first-time buyers.

In a statement also published on Tuesday, the US Internal Revenue Service unveiled a new tax credit for first time homebuyers included in the recently enacted Housing and Economic Recovery Act of 2008.

The IRS explained that available for a limited time only, the credit:

• Applies to home purchases after April 8, 2008, and before July 1, 2009.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning that the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax that they owe.

However, the US credit operates much like an interest-free loan, because it must be repaid over a 15-year period.

Giving an example, the IRS explained that "an eligible taxpayer who buys a home today and properly claims the maximum available credit of USD7,500 on his or her 2008 federal income tax return must begin repaying the credit by including one-fifteenth of this amount, or USD500, as an additional tax on his or her 2010 return".

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