Home Buyer Tax Credit
Ok, I’ve been putting it off for a week, here is my obligatory tax credit post. Don’t be confused by my lack of enthusiasm, the tax credit is a great incentive to buyers and sellers alike. I believe that it will help push the economy forward in the short-term; what this credit means down the road is what concerns me (increasing debt=higher interest rates, who’s going to pay for it, etc.), but that is a discussion for another time. As you may know the 2009 first time home buyer tax credit was set to expire November 30, 2009. As of November 6th new legislation was passed to extend the existing first time home buyer’s credit as well as the addition of a new credit for repeat buyers. So without further delay, here are the fundamentals of the new extended and expanded home buyer tax credit…
First time home buyers remain eligible for a credit equivalent to 10% of the purchase price, up to a maximum of $8000 (which is the norm in our market). You are considered a first time home buyer if you (or your spouse) have not owned a residence at any time within the past 3 years prior to the new home purchase.
Pete and repeat were walking down the road… sorry, sometimes I just can’t help myself. Repeat buyers are taxpayers who have lived in the same principal residence for 5 consecutive years out of the last 8 years. This type of buyer may be eligible for a tax credit equivalent to 10% of the purchase price of a new residence, up to $6500 (again standard in our market).
To take advantage of either credit you must meet the following qualifications:
- You must occupy the new home as your principal residence for a minimum period of three years after settlement or be required to pay back the credit.
- There are income limits to qualify; if you make less than $125,000 single filer/$225,000 joint filers you are entitled to the full credit. For individual/joint filers making $125-145,000/$225-245,000 the credit phases out and you may be qualified for partial credit. Buyers earning more than $145,000 (single)/$245,000 (joint) are not eligible for the credit.
- You must be under contract to purchase your new home no later than April 30, 2010 with a settlement date no later than June 30, 2010.
- The sale price of the new home cannot exceed $800,000.
Please note that the above information applies to properties that are purchased November 7, 2009- April 30, 2010. Also important to note is that this is a refundable tax credit, not a deduction. This means that the credit offers a refundable dollar-for-dollar reduction in what the taxpayer owes. For example, a taxpayer who owes $10,000 and qualifies for the full $8000 credit would only owe the IRS $2,000. If the qualifying credit exceeds the taxpayer’s liability, the government would refund the excess portion of the tax credit. For example, if you qualify for the $8,000 tax credit but only owe $5,000 in tax, you could receive a $3,000 check from the IRS. Pretty sweet!