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What You Should Know – $8,000 Homebuyer Tax Credit Extension FAQs

Congress extends the popular $8,000 tax credit for homebuyers.

Congress extends the popular $8,000 tax credit for homebuyers.

New legislation passed through the United States Congress has extended and expanded the first-time homebuyer tax credit. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract on or before April 30, 2010.

The extended Act covers sales occurring after November 6, 2009, and establishes income limits of $125,000 for single taxpayers and $225,000 for married couples filing joint returns. The new law:

• Extends the deadline for purchasing and closing on a home
• Authorizes the credit for long-time homeowners buying a replacement primary
• Raises the income limitations for homeowners claiming the credit

The Worker, Homeownership, and Business Assistance Act of 2009 has also established a tax credit of up to $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a primary residence after November 6, 2009 and on or before April 30, 2010.

Below are basic questions and answers regarding the extended $8,000 Homebuyer Tax Credit and the $6,500 move-up/repeat buyer credit. For more in-depth queries, we encourage you to consult a qualified tax advisor or professional.

Questions/Answers regarding the $8,000 Homebuyer Tax Credit:

How is this home buyer tax credit different from the tax credit that Congress enacted in early 2009?
The previous tax credits applied only to first-time home buyers. Also, the expanded tax credit’s income limits were increased, the documentation requirements were tightened, and the program’s deadlines were extended to April 30, 2010.

What is the credit?
The first-time homebuyer credit is a tax credit included in the Housing and Economic Recovery Act of 2008. For homes purchased in 2009, the credit operates like an interest-free loan because it must be repaid over a 15-year period. The credit was expanded for homes purchased into 2010.

Who is eligible for the $8,000 tax credit?
First-time home buyers purchasing any kind of home—new or resale—are eligible for the tax credit. To qualify for the tax credit, a home purchase must occur on or before April 30, 2010. For the purposes of the tax credit, the purchase date is the date when closing occurs and the title to the property transfers to the home owner.

How is the amount of the tax credit determined?
The tax credit is equal to 10 percent of the home’s purchase price up to $8,000.

What are the income limits for claiming the $8,000 tax credit?
For sales occurring after November 6, 2009, the income limit for single taxpayers is $125,000, and $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return.

The income limits for claiming the tax credit were raised when the tax credit was extended. Are the higher limits retroactive?
No. The new income limits are only applicable to purchases after November 6, 2009.

What types of homes will qualify for the $8,000 tax credit?
Any home used as a primary residence will qualifies for the credit, provided the home is purchased for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (mobile homes) and houseboats.

Instead of buying a new home from a builder, I constructed a home on a lot that I already own. Do I still qualify for the tax credit?
Yes. For the purposes of the home buyer tax credit, a primary residence constructed by the homeowner is treated by the tax code as having been “purchased” on the date the owner first occupies the house. In this situation, the date of first occupancy must be on or after January 1, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by April, 30, 2010).

I bought a home in 2008. Do I qualify?
No. But if you purchased your first home between April 9, 2008 and January 1, 2009, you may qualify for a different tax credit. Consult with your tax advisor for more information.

If I’m qualified for the tax credit and buy a home in 2009 (or 2010), can I apply the tax credit against my 2008 (or 2009) tax return?
Yes. The law allows taxpayers to choose to treat qualified home purchases in 2009 (or 2010) as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). A benefit of this election is that a homebuyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount.

Questions/Answers regarding the $6,500 move-up/repeat buyer credit:

Who is eligible to claim the $6,500 tax credit?
Qualified move-up or repeat home buyers who owned their current homes at least 5 years purchasing any kind of home are eligible to claim this credit. To qualify, buyers have to be in a purchase agreements by April 30, 2010 and close on or before June 30, 2010.

How is the amount of the tax credit determined for the $6,500 tax credit?
The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.

Are there any income limits for claiming the $6,500 tax credit?
Yes. The income limit for single taxpayers is $125,000, and the limit is $225,000 for married taxpayers filing a joint return.

How do I claim the tax credit?
Claim the tax credit on your federal income tax return. Home buyers should complete IRS Form 5405 to determine their credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns).

What types of homes will qualify for the tax credit?
Any type of home that will be used as a primary residence will qualify for the credit, provided the home is purchased for a price less than or equal to $800,000.

Who Linked To This Post?

  1. Up to $8,000 Tax Credit for Homebuyers | Michael Saunders Real Estate Blog
  2. ‘Tis the Season – Top 10 Reasons to List During the Holidays | Michael Saunders Real Estate Blog
  3. Top 10 things you should know about the homebuyer’s tax credit before it runs out | Michael Saunders Real Estate Blog

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