HOME BUY TAX CREDIT EXTENDED!…& BETTER THAN EXPECTED

Congress just extended and added more eligible buyers to what started as the $8,000 first time home buyer tax credit.  This credit was due to expire November 30. This extends the likelihood of stimulating the housing market as more people are eligible for these credits.

The existing tax credit of $8,000 was for home buyers who have not owned a primary residence in their own name in last three years. It now offers a $6,500 tax credit for move-up home buyers.

A $6,500 credit can apply to investors choosing to buy a move-up and rent an existing home. They can move out of an existing primary residence, provided they have lived there for five consecutive years in the last eight, buy a new house  and rent the previous home used as a residence.

The tax credit applies to homes purchased under a binding contract for less than $800,000 before May 1, 2010 and closed by July 1, 2010. It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.

The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. This means that more people will qualify for the credit – especially in parts of the country with higher costs of living. This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.

The following details apply to the homebuyer tax credit expansion:

Who is Eligible

• First-time homebuyers, who are defined by the law as buyers who have not owned a principal residence during the three-year period prior to the purchase, may be eligible for up to an $8,000 tax credit.
• Existing homeowners who have been residing in their principal residence for five consecutive years out of the last eight and are purchasing a home to be their principal residence (“repeat buyer”), may be eligible for up to a $6,500 tax credit.
• All U.S. citizens who file taxes are eligible to participate in the program.

Income Limits

• Homebuyers who file as single or head-of-household taxpayers can claim the full credit ($8,000 for first-time buyers and $6,500 for repeat buyers) if their modified adjusted gross income (MAGI) is less than $125,000.
• For married couples filing a joint return, the combined income limit is $225,000.
• Single or head-of-household taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.
• The credit is not available for single taxpayers whose MAGI is greater than $145,000 and married couples with a MAGI that exceeds $245,000.

Effective Dates

• The eligibility period for the tax credit is for homes purchased after Nov. 6, 2009, and before May 1, 2010. However, home purchases subject to a binding sales contract signed by April 30, 2010, will qualify for the tax credit provided closing occurs prior to July 1, 2010.

Types of Homes that Qualify

• All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as their principal residence. Vacation home and rental property purchases do NOT qualify.

Tax Credit is Refundable

• A refundable credit means that if the amount of income taxes you owe is less than the credit amount you qualify for, the government will send you a check for the difference.

For example:

• A first-time buyer who qualifies for the full $8,000 credit who owes $5,000 in federal income taxes would pay nothing to the IRS and receive a $3,000 payment from the government. If you are due to receive a $1,000 refund, you would receive $9,000 ($1,000 plus the $8,000 first-time homebuyer tax credit).
• A repeat buyer who owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If you are due to get a $1,000 refund, you would get $7,500 ($1,000 plus the $6,500 repeat buyer tax credit).
• All qualified homebuyers can take the tax credit on their 2009 or 2010 income tax return.

Payback Provisions
The tax credit is a true credit. It does not have to be repaid unless the home owner sells or stops using the home as their principal residence within three years after the purchase.