Saturday, November 7, 2009

The New (and Improved) Home Buyer Tax Credit

With the stroke of a pen Friday, President Obama made more than two-thirds of the current homeowners and essentially all first-time home buyers eligible for a tax credit when they purchase a house. The "Worker, Homeownership, and Business Assistance Act of 2009" was signed into law on Friday, and it became effective today.

The new law had heavy backing by the homebuilder and realtor associations, and it did look to "fix" some of the previous problems with the initial first-time home buyer tax credit.

The following a breakdown of the bill and what it means to each group:

First-Time Home Buyers - The tax credit ($8,000) remains the same, but the new law pushes back the deadline to qualify. A contract must be signed before May 1, 2010, and the purchase must close by June 30, 2010. The definition of "first-time home buyer" remains as anyone who has not owned a principal residence in the three years prior to making the purchase. Income limits have been raised to $125,000 for singles (previously $75,000) and $225,000 for married couples (previously $150,000).

Expanded to Current Homeowners - Current homeowners can potentially now qualify for a tax credit of up to $6,500 when they purchase their next primary residence. The new law states that current homeowners must have lived in their home for five consecutive years over the previous eight to be eligible. Qualified home buyers can obtain the credit on homes purchased between Nov. 7 and the end of April 2010 (signed contract by April 30 - close by June 30). The income limits for current homeowners are the same as those for first-time home buyers. Estimates are that up to 75% of current homeowners are now eligible for this credit.

Fraud Prevention - We have seen the examples of the 4 year old that purchased a home and thousands of questionable credits, and the new law is trying to combat those issues too. Anyone claiming the credit must now provide documentation (copy of the HUD-1 Settlement Statement attached to the return) to prove that the sale has closed. Also, a minor (under 18) cannot purchase a home and apply for the credit.

Price Limit, Usage - The new law allows the credit to be used only on primary residences purchased for less than $800,000. Also, the purchasers must use the new property as their primary residence for three or more years after the purchase, and if they do, they do not have to pay the credit back. Finally, buyers can claim the credit on their 2009 taxes, even if the purchase was made in 2010 by filing an amended return.

No comments: