The Worker, Homeownership and Business Assistance Act of 2009 (WHBAA) extended the temporary tax credit to provide a continuing incentive for first time homebuyers to purchase a home, or enter into a binding contract to purchase a home, on or before April 30, 2010, and close by June 30, 2010. In addition, WHBAA allows a tax credit of up to $6,500 for long time homeowners who buy a replacement principal residence, so long as they have lived in the same principal residence for any five-consecutive–year period during the eight-year period that ended on the date the replacement home is purchased.

A refundable tax credit of up to 10 percent of the cost of the home, not to exceed $8,000, is available to eligible first time homebuyers.  The credit may be claimed by filing a Form 5405 with your Federal Income Tax Return.  See IRS Form 5405 for  instructions or consult with your tax advisor.

In general, a tax credit is used to reduce the amount of taxes owed. This tax credit is refundable, so you may be eligible to receive a refund even if you owe no taxes, or you owe less than the credit for which you are eligible.

For example, if you owe $500 in taxes and are eligible for the maximum $8,000 credit, you are eligible for a refund of $7,500 ($8,000 - $500).

If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit.

Question: Which of the following are true?

1. The federal tax credit is available for first time homebuyers and long time homeowners who buy a replacement principal residence, so long as they have lived in the same principal residence for any five-consecutive–year period during the eight-year period that ended on the date the replacement home is purchased.
2. The credit must be repaid to the Federal Government if I move or sell within 36 months of the purchase, unless I meet certain very limited exceptions.
3. The tax credit is available for the purchase of my main home on or after January 1, 2009, and/or if I enter into a binding contract to purchase a home on or before April 30, 2010, and close by June 30, 2010.
4. All of the above

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CHFA is offering the CHFA JumpStart2 Tax Credit Loan Program to enable first time homebuyers in need of closing costs and/or downpayment assistance to borrow funds on a short term basis under the new federal First-Time Homebuyers Tax Credit. Eligible borrowers may receive from CHFA a loan in an amount up to three and one-half percent (3.5%) of the first mortgage loan amount or $6000, whichever is less, to be secured by a second mortgage loan. This second mortgage loan is only available in conjunction with a CHFA JumpStart2 Tax Credit First Mortgage Loan.

The First Mortgage Loan has monthly payments due and is payable over thirty (30) years. The Second Mortgage Loan has zero percent (0%) interest only until December 31, 2010. If you do not pay it off by that date, you must start making monthly payments and interest starts accruing at eight percent (8%) per annum for ten (10) years. To avoid the payment of interest on this loan and to take full advantage of its benefits, you should pay the CHFA JumpStart2 Second Mortgage Loan in full when you receive your tax refund (but no later than December 31, 2010, to avoid the payment of interest).

CHFA is offering the CHFA JumpStart2 Second Mortgage Loan based upon the expectation it will be repaid in its entirety when you receive the tax credit refund. If you do not receive all or part of your tax credit, you are still liable for repayment of the loan.

Instructions on how to repay the CHFA JumpStart2 Second Mortgage Loan to CHFA will be provided in your CHFA welcome package after loan closing.

You will receive a credit of $250 of the $350 Administration Fee you paid at closing if you repay CHFA the full amount of the CHFA JumpStart2 Second Mortgage Loan by December 31, 2010.

Note: Repayment of the CHFA JumpStart2 Second Mortgage loan does not remove your obligation to repay the federal government if the home ceases to be your main home within 36 months after closing. See IRS Form 5405 for guidance or consult with your tax advisor.

Joe purchased a $150,000 home in January 2010.

He received a CHFA JumpStart2 First Mortgage Loan for $145,000, and a $5,000 CHFA JumpStart2 Second Mortgage Loan for down payment and/or closing costs.

After filing his 2009 taxes on which he claims the refundable credit, Joe receives a total tax refund of $9,000 in May 2010, of which $8,000 is from the First-Time Homebuyer Tax Credit.

Question: How much would Joe’s payoff be (taking into account the $250 refundable administrative fee) if he pays off the CHFA Second Mortgage Loan on or before December 31, 2010?

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