More Purchases are Now Eligible for the Home Buyer Tax Credit

The federal home buyer tax credit was extended and expanded last week, giving home buyers more time and making more people eligible for the credit.  The Worker, Homeownership, and Business Assistance Act of 2009 extends the home purchase deadline to April 30, 2010, raises income limits for eligibility, and allows some existing home owners to take advantage of the credit as well.

For first-time home buyers, the tax credit is calculated as 10% of the home’s purchase price, up to $8,000.  You are considered a first-time home buyer if you (and your spouse) have not owned a house in the last 3 years.  If you already own a home, however, you may be eligible for the credit as an existing home owner.  To qualify under this category, you (and your spouse) must have owned a home and lived in it for at least five consecutive years out of the eight years prior to making this new home purchase.  The credit for existing home owners is also equivalent to 10% of the purchase price, but is capped at $6,500.  For both groups, the home’s purchase price cannot exceed $800,000.

The income limits have also been increased under this new Act, and, for first-time home buyers, apply retroactively up to the beginning of 2009.  That is, the first-time home buyer tax credit applies to purchases made between January 1, 2009 and April 30, 2010, inclusive, although the credit for existing home owners only covers purchases made on or after November 6, 2009, up to April 30, 2010.  The retroactivity on the first-time home buyer credit may now make some people, who bought homes earlier this year but were ineligible then for the tax credit, eligible through the income limit increase.  With the WHBA Act, the tax credit is available to individual taxpayers with a modified adjusted gross income (MAGI) of up to $125,000 (or $225,000 if married filing jointly).  Individuals with MAGIs between $125,000 and $145,000 (and joint filers with MAGIs between $225,000 and $245,000) may claim partial credit.

If you are thinking of taking advantage of this home buyer tax credit, here are a few more things you should know:

–  You must live in your new home for 36 months after the purchase date.  If you fail to do so, you are required to pay back the credit when you file your income taxes for the year in which you move out.  (Deployed military personnel are excluded from this restriction, as long as they do not sell their new home.)

–  If you are claiming the credit as an existing home buyer, you do not need to sell your old home as long as you make your new home your primary residence.

–  If you cannot meet the April 30, 2010 deadline, you have at least then to enter into a binding sales contract and you must make the purchase by June 30, 2010 to be eligible for the credit.

–  The tax credit is also available for constructing a home in a lot that you already own, and the April 30, 2010 deadline applies to the date of occupancy.

–  For a purchase in 2009, you can choose whether to claim your credit by amending your 2008 taxes (use IRS Form 1040X to do so) or through your 2009 taxes.  Similarly, if purchasing in 2010, you can include the home purchase in either your 2009 or 2010 income taxes.  This flexibility may be useful if your MAGI is below the limit in one year but not the other, and you may decide according to which gives you the highest credit.

Legislators expect that, with the expansion of the eligibility criteria for this tax credit, home sales will pick up again.  If they are at all right, this increase in demand may bring increases in housing prices.  So if you are thinking of buying a home in the next year, jumping in early might get you a better deal – and a hefty tax credit to go with it.

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