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Congress Extends and Expands the First Time Home Buyer Tax Credit!
Homebuyer Tax Credit FAQs:
Q: Existing homeowner credit: Must the new house cost more than the old house?
A: 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.
Q: 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?
A: 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.
Q: I am a firsttime 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?
A: 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 phaseout range).
Q: 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?
A: 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.
Q: 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?
A: 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.
Q: I am an eligible firsttime 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?
A: 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.
First-time Buyer Definition for Eligibility • Then: May not have had an interest in a principal residence for 3 years prior to purchase. • Now: Same.
Current Homeowner Credit Amount • Then: $0. • Now: $6,500.
Current Homeowner Definition for Eligibility • Then: None. • Now: Must have used the home sold or being sold as a principal residence consecutively for 5 of the previous 8 years.
Termination of Credit • Then: Purchases after November 30, 2009. • Now: Purchases after April 30, 2010.
Binding Contract Rule • Then: None. • Now: So long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Income Limits • Then: $75,000 - single, $150,000 - married. • Now: $125,000 - single, $225,000 - married.
Limitation on Cost of Purchased Home • Then: None. • Now: $800,000.
Purchase by a Dependent • Then: None. • Now: Ineligible.
Anti-fraud Rule • Then: None. • Now: Purchaser must attach documentation of purchase to tax return.
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If you are going to sell your present home, the market conditions will play a crucial role in determining the asking price. Market conditions change constantly, so it is important that you get solid advice from a real estate professional who is familiar with your specific area.
A good real estate agent will know how quickly houses in your area are selling, and will be aware of other factors that may influence the sale. For example, nearby commercial development, which may create congestion and noise, may also mean a greater demand for housing from people who will be working in the new office buildings. A bus route that cuts commuting time could make your home more valuable, while major highways close by can be an issue for many buyers. The economic conditions have a strong impact on the real estate market. Real estate professionals can help you consider all of the issues and assist you in setting a fair price for your home.
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