By this time, you are probably aware of the two home buyer tax credits that were approved on November 6, 2009 but we wanted to give you the ‘fine print’ details.
The first is actually an extension of the $8,000 first time home buyer tax credit that was introduced earlier this year and originally set to expire at the end of this month. It has now been extended to include homes placed under contract by April 30, 2010 and closed prior to July 1, 2010. The rules are the same as in the previous legislation except that the income limit has been increased to $125,000 for single home buyers and $225,000 for married couples who file a joint return. Individuals with incomes up to $145,000 and joint filers with incomes up to $245,000 qualify for reduced credits.
A first time home buyer is defined as someone, including both partners of a married couple, who has not owned a principal residence for three years before the purchase. The credit is for 10% of the purchase price up to a maximum of $80,000 and does not apply to homes priced at more than $800,000 – usually not a problem for first time home buyers. Buyers do not qualify if they purchase from a lineal ancestor or descendent, including parents or grandparents and children or grandchildren or from a spouse or the spouse’s lineal relatives. You can claim the credit with a co-signer but not if you are claimed as a dependant on someone else’s return.
Taxpayers who claim the credit must use the home as a principal residence for the next three consecutive years. The credit is refundable which means that if the amount of income tax you owe is less than the credit amount you qualify for, the government will send you a check for the difference.
All types of homes qualify including new or resale singe family detached and attached townhomes and condos. The tax credit can be claimed on either the 2009 or 2010 tax return. If you are determined to close on the purchase of a home prior to the June 30, 2010 deadline, you may consider adjusting your current withholding to give you more money each month to apply towards the down payment and closing costs.
The new $6,500 tax credit applies to repeat home buyers as long as they have lived in one residence for five consecutive years out of the last eight. The rules for income and timing are the same as for first time home buyers as well as the type of home. There is nothing that says the home purchased has to be worth more money nor is there anything that says you have to sell your existing home. If you retain your existing home, the home you purchase and claim the credit on must become your principal residence for the next three consecutive years.
There is a lot of additional information about the tax credits available on line. The National Association of Home Builders is sponsoring a good one at www.FederalHousingTaxCredit.com.
If you qualify, the tax credit is real money in your pocket and can be used to reimburse you for some of the expense associated with the purchase or provide funds for home improvement or for anything you can imagine.
It is very doubtful that the tax credit will be extended again, so if you are a qualified first time home buyer and have been considering the purchase of a home don’t wait and miss the boat. It can easily take a month or two to find the right home, you need to qualify for financing and it can take another six to eight weeks to close on the purchase of a resale home and longer if the home is under construction. Add in the holiday season coming up when most people are busy doing other things and it is easy to see – the sooner you get started the better. If you are a qualified repeat buyer who has been thinking about a the purchase of newer home or an older home, a smaller home or a bigger home, a new neighborhood or across the street, you just got a $6,500 gift, if you can make it happen. Most importantly, if you need to sell your current home to purchase another home, you need to get started today. Call your real estate professional and get the planning under way.