Home Buyer Tax Credit Expanded & Extended Briefly

The first time home buyers tax credit has been expanded and extended.  Those who have not owned a home (including condo or co-op unit) in the past three years are eligible for the $8,000 tax credit and those who have lived in their current home for five years and are purchasing a new home are eligible for a $6,500 credit.  In both cases, a purchase contract must be in place by April 30, 2010 and the purchase closed by June 30, 2010.  Provisions take effect immediately and affect sales in process. 

There is a lot of fine print, some of which is provided below.  For details on how it may apply to you, please consult a professional tax specialist.

The following information has been provided by the National Association of Realtors and Keller Williams Realty.

Homebuyers $8,000 Tax Credit Extended through April 30, 2010

On November 6, 2009, President Obama signed into law an extension of the $8,000 first-time homebuyers tax credit until April 30, 2010. Binding contracts for the purchase of a principal residence signed by April 30 must close by June 30 to qualify in order for the first-time homebuyer to qualify for the credit. For qualifying purchases in 2010, taxpayers will have the option of claiming the credit on either their 2009 or 2010 return. 

The new law added several new provisions that apply to persons purchasing homes on or after November 7, 2009:

• Homebuyers with higher incomes can now qualify for the credit for homes purchased after November 6, 2009. Income limits have been increased to $125,000 for individuals and $225,000 for couples filing jointly. These income limits were formerly $75,000 and $150,000, respectively. The credit phases out for individual taxpayers with a modified adjusted gross income between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers.
• The new law adds a $6,500 credit for long-time homeowners who want to trade up, that is, current home owners who have lived in their home for five of the past eight years and who buy a replacement principal residence by April 30, 2010.
• Qualifying home purchase prices must not exceed $800,000.
• The extended tax credit for first-time home buyers remains at $8,000 and requires that the buyer have not owned a home in the past three years, as before.
• Purchasers claiming the credit will need to attach documentation of the transaction to their tax returns in order to help combat the tax credit fraud that has been experienced by the IRS to date.

National Association of REALTORS® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001

Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit

Question: Existing homeowner credit: Must the new house cost more than the old house?

Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?

Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a first time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered,

however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?

Answer: Yes. The new income limitations go into effect as soon as the President has signed the bill.  The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?

Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?

Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he did since 3 years doesn’t impact eligibility.

Question: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?

Answer: You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.

Home Buyer Tax Credit Extended and Expanded

	Current	New
Effective Date	·        January 1, 2009	·        November 7, 2009
Deadline	·        Close on or before  November 30, 2009	·       Contract signed before May 1, 2010, must close before July 1, 2010·       Members of the uniformed services, foreign services, and intelligence employees who served an extended service of 90 days will have until April 30, 2011 and June 30, 2011.
Amount	·        First-Timers: maximum of $8,000  or 10% of sales price·        Prior Owners: $0	·        First-Timers: Unchanged·        Prior Owners: $6,500 if lived in prior home for at least 5 years of past 8 years
Income Limit	·        Individual: $75,000·        Couple: $150,000	·        Individual: $125,000·        Couple: $225,000
Other   Restrictions	·       Home must be primary residence for at least 3 years. If home is sold or buyer moves before 3 years, must re-pay full amount of credit.	·       Buyer must be at least 18 years old and not classified as a dependent for tax purposes·        Home must cost less than $800,000·       New Home must be primary residence for at least 3 years following purchase. If home is sold or buyer moves, before 3 years, must re-pay full amount of credit. Exception for military, foreign services, or intelligence with extended 90 days service overseas.
How to claim	·       If purchased in 2009, by amending 2009 tax return or claiming on 2010 tax return	·       If purchased in 2010, by amending 2010 tax return or claiming on 2011 tax return

Homebuyer Tax Credit to be Extended

Not only are home prices down, the federal government is about to throw in $6,500 to make a purchase an even better deal.

The intent is to stimulate sales of higher priced homes as well as entry level properties.  It also could help sellers in getting a slightly higher price for their homes.  However, further extensions of this tax credit are not likely, so those delaying a home purchase may lose out on a great source of financial assistance.

STEPHEN OHLEMACHER (AP) reports:

WASHINGTON — First-time homebuyers have been getting tax credits of up to $8,000 since January as part of the economic stimulus package enacted earlier this year. With the program scheduled to expire at the end of November, the Senate voted Wednesday, November 4 to extend and expand the tax credit to include many buyers who already own homes. The House is scheduled to vote on the bill Thursday, November 6.

Buyers who have owned their current homes at least five years would be eligible for tax credits of up to $6,500. First-time homebuyers — or anyone who hasn’t owned a home (including condo or co-op unit) in the last three years — would still get up to $8,000. To qualify, buyers in both groups have to sign a purchase agreement by April 30, 2010, and close by June 30.

“This is probably the last extension,” said Sen. Johnny Isakson, R-Ga., a former real estate executive who championed the credits.

The homebuyers’ tax credit is one of two tax breaks totaling more than $21 billion that the Senate included in a bill extending unemployment benefits for those without a job for more than a year. The other would let companies now losing money recoup taxes they paid on profits earned in the previous five years.

The real estate industry has been pushing to extend and expand the housing tax credit. About 1.4 million first-time homebuyers have qualified for the credit through August. The National Association of Realtors estimates that 350,000 of them would not have purchased their homes without the credit.

Extending and expanding the tax credit for homebuyers is projected to cost the government about $10.8 billion in lost taxes. The measure passed the Senate by a 98-0 vote.

Expanding the tax credit for money-losing companies is projected to cost $10.4 billion.

The tax break would help industries suffering losses in 2008 or 2009, including retailers, homebuilders and newspapers. The new tax break would be available to companies of any size, providing a quick source of cash.

The tax breaks would be paid for largely by delaying a tax break for multinational companies that pay foreign taxes. It was passed in 2004 and originally was to have taken effect this year, but would now be delayed until 2018.

Waterstone Mortgage Reports Great Rates

Despite the the looming threat of serious inflation and rising mortgage rates, as of early October,  Waterstone Mortgage was able to provide the lowest rates we have seen since Dwight D. Eisenhower was president.  It is important to note that the actual rates available to a particular borrower are based on a complex grid, including credit scores among other factors.

FHA ($180,000 and up, lower loan amounts adjust slightly):

4.5 – 1.5 Points

5.0 – No Points

5.25 – I pay $1,000 of closing costs

5.5% -I pay all closing costs

Same rates for VA

Conventional

5 year arm, 740 score, 20% equity, no escrow:

3.5% – 1 Point

4.0% – No Points

Rural Development, Zero Down Purchase, No Monthly MI:

5.5 – No Points

5.0 – 1 Point