First time home buyers have been feeling the pressure to find a home, get it under contract, and get to closing before Nov. 30. Those who didn’t would miss their opportunity. That opportunity was extended November 6 when President Obama signed an extension and an expansion of the First Time Home Buyer’s Tax Credit.
This is good news for both buyers and sellers. Buyers now have more time to find a home and still qualify for the tax credit; Sellers have the advantage of being in a great market for first time home-buyers, making their home easier to sell, as well as the potential for using the expanded tax credit themselves on the home they buy.
Here is how it works:
If you buy a home before April 30 and close by June 30, 2010, you may qualify for up to $8,000 if you are a first time buyer, and up to $6500 if you have lived at least 5 years in the home you are selling, subject to certain rules. These amounts are the maximum allowable credits, which are based on 10 percent of the purchase price. This money is in the form of a tax credit, so it is applied towards your tax bill. If you don’t owe taxes, you will receive a check from the federal government. This money does not need to be paid back, as long as you stay in your home for at least 3 years. You may use the money however you choose: new carpet, appliances, furniture, maintenance fund, car, or even a vacation.
How you qualify:
First-time buyers cannot have owned a home in the past 36 months. Repeat buyers need to have lived in their home for at least 5 consecutive years out of the last 8 years. Also, there is a newly increased income limit: $125,000 for individuals; $225,000 for joint filers. There are reduced credits if your income is above that, but still below $145,000 for individuals and below $245,000 for joint filers. The credit only applies to primary residences and the purchase price must stay under $800,000. There are other qualifications and exceptions that may apply, including those regarding related persons. Make sure you seek competent tax advice before making any decisions based on whether you may qualify for the credit.
Q: As a repeat buyer, do I need to buy a more expensive home to qualify?
A: No. You just need to have owned your home for at least 5 years, and lived in it for at least 5 of the last 8 years.
Q: I sold my home and have been renting. Would I qualify?
A: If you haven’t owned property for 36 months, you would qualify as a first time buyer. If you owned and resided in your property for at least 5 consecutive years of the past 8 years, you would qualify as a repeat buyer.
Q: Can I keep my current house as a rental and still qualify as a repeat buyer?
A: If you have lived in your current house for at least 5 consecutive years, want to rent it, and purchase a different primary residence, then you would qualify. You must live in the house you purchase. You may opt to rent out the house you are living in currently, and still qualify for the tax credit.
Q: Do you think it will keep getting extended?
A: According to the lawmakers, it will not be extended again.
Q: I heard there was a lot of fraud going on. How are they monitoring that?
A: Buyers must attach documentation of the purchase to their tax return.
The winter months are traditionally slower months for home sales, so this tax credit should help by giving a sense of urgency to buyers. It not only helps buyers, but there is a broader economic impact as well. Buyers use inspectors, appraisers, handymen and contractors, and then later shop for furniture, paint, and other home improvement projects. This is why the government calls it an “economic stimulus.” It reaches further than just the sale of homes – it really does stimulate the economy. For more information check out www.federalhousingtaxcredit.com or talk to your tax advisor for specific information regarding your situation.