8 Things You Need to Know About the Extended Tax Credit
NOTE: This document is for informational purposes and should not be construed as tax or legal advice. For specific advice on their own tax situation consumers should always consult a qualified tax professional.
There have been two major provisions made to the first time home buyer tax credit. The first is that the $8,000 credit has been extended to April 30th 2010. The second is that it expands the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010. Here is what you need to know.
1. Who is eligible? If you have not owned a principal residence in the past three years, you qualify as a first-time home buyer. Even if you currently own rental property or a vacation home, but it is not your principal residence, you could still be a first-time homebuyer. With the new guidelines, if you are a current home owner living in your home for five consecutive years within the last eight years, you too are now eligible.
2. What are the income restrictions? As with the 2009 tax credit, income restrictions still apply, however they were raised with the new extension. If you are now closing on a home after November 6th, 2009 the full amount of the credit is available for individuals $125,000 or less. Married couples must make no more than $225,000. You can still qualify for partial credit if your income is above these amounts, but anything above $145,000 for singles and $245,000 for couples, is completely ineligible. Of course, the credit decreases the closer you are to the cap.
3. What properties are eligible? First and foremost, it must be a primary residence. This includes single-family homes, condos, townhomes, and co-ops. Secondly, the home must be purchased for $800,000 or less.
4. What is the absolute last day the credit is available? April 30th 2010 is the deadline to have a written binding contract of your new home purchase. But as long as the contract in effect by April 30th, the purchaser will have until July 1st 2010 to close.
5. Does the home-buyer need to repay the credit? No. As long as you occupy the home for three years or more, the credit is yours to keep - even if you owe no tax or the credit is more than the tax owed.
6. Are there any special adjustments for members of the Military? Yes. Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.
7. Does the homebuyer have to claim it on their 2009 taxes? No. You have the option to claim it on your 2009 tax return or 2010 tax return. A new version of Form 5405, First-Time Homebuyer Credit, will soon be available. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. If you are choosing to claim the credit on your 2009 returns, no matter when the house was purchased, you must also use the new version of Form 5405.
8. Is there anything else homebuyers should know? Yes! This Q&A is intended to provide a quick overview. There are numerous other provisions in the new credit and homebuyers should understand them clearly before they make any decision regarding their eligibility.
For a quick reference, this chart gives you a great overview of the changes from the older bill to the newer bill.
