As expected, President Obama signed into law an extension and expansion of the home buyer's tax credit this past week. It's part of the unemployment compensation extension bill.
The home Buyer's credit originated in February as part of an economic stimulus bill and was due to expire on December 1, 2009. It has now been extended to home purchases that are entered into agreement before May 1, 2010, and closed before July 1, 2010.
The original credit amount for a "first-time home buyer" remains at 10 percent of the purchase price, up to a maximum of $8,000. A first-time home buyer is defined as someone (or a spouse) who has not owned a home in the last three years. The credit was phased out for singles with Adjusted Gross Income (AGI) of $75,000 and married couples with AGI of $150,000, but the new law increases the phaseouts to $125,000 and $225,000, respectively.
In addition to the extensions of the credit for first-time home buyers, the new law allows for a tax credit for home buyers that already own homes. A new credit of 10 percent of the purchase price, up to $6,500, is available to buyers who have lived in their present homes for 5 consecutive years of the past 8 years. This credit is meant to spur on "move up" buyers. The same income phaseout limits apply.
The credit, whether used by a first-time home buyer or a long-time resident home buyer, applies only to primary residences, and the purchase price must not exceed $800,000. There seems to be general consensus that this law will not be extended again.
All homes with a purchase price of less than $800,000 qualify, including newly-constructed or resale, and single-family detached, townhomes or condominiums, provided that the home will be used as the principal residence. Vacation home and rental property purchases DO NOT qualify.
Here is one important and potentially critical oddity about this credit: you may claim it on your 2009 tax return, even if you buy your house in 2010!! So, even though the home purchase may occur in 2010, you have the right to claim it for 2009, if you extend your return or amend your already-filed 2009 return. In this way you will receive your cash much sooner than waiting until you file your tax return for 2010. However, keep in mind the AGI limits mentioned above; these limits apply to the year in which you claim the credit.
The credit is a true credit for tax purposes. Therefore, if you complete your tax return and are due a refund of let's say $1,000, you would add the $8,000 credit to this amount for a total refund of $9,000. Please consult your tax advisor for more details.
