Until April 30th of this year, both new homebuyers and current homeowners can qualify for a tax refund of 10% of a purchased home up to $8,000 for new homebuyers and $6,500 for current homeowners.  And you don't have to pay it back unless you sell the home within three years after purchase.

 

It's being extended because the economy is still in a slump, and the Feds want to recreate the surge in real estate sales that occurred when the Homebuyer Tax Credit was first introduced in summer of 2009.  Here's an interesting fact: from June to November of that year, the credit was literally responsible for 40% of all home sales in Wisconsin.

With such a huge impact, it made sense to not only extend the cut-off date, but also expand the benefits to current homeowners and raise the income limits (as seen below).

Combined with historically low interest rates, more affordable housing, and a wide selection of available homes, the extended tax credit is the final ideal condition needed to make these next couple months a perfect storm of real estate opportunity.

To qualify, you must satisfy several conditions (listed below) and have a written binding contract to purchase in effect before April 30, 2010.  You will then have until June 30, 2010 to close on the house.  For a home you build, the purchase date is the date you first occupy the home.

To qualify for the $8,000 credit for new homebuyers, you cannot have had any ownership interest in a home in the three years prior to the day of the 2010 purchase.

If you're an existing homeowner looking to qualify for the full $6,500 credit, you have to have owned your home consecutively for 5 of the previous 8 years.

This is a refundable credit and that means the credit amount is added to your tax return.  For example, if you're a qualifying current homeowner and you owe $5,000 in federal income taxes, you would pay nothing to the IRS and receive a $1,500 payment from the government.  If you are due to receive a $1,000 tax refund from the government, your refund would grow to $7,500.

There are some limitations, however.  These limitations apply to both first-time homebuyers and current homeowners:

·         Home Limitations:

o   A qualifying home has to be your primary residence, in the United States, and can be a single-family, duplex, new construction, townhome or condominium apartment.   Vacation homes, rental properties (except one you live in) and homes in U.S. territories do not qualify.

o   The cost of the purchased home cannot exceed $800,000. 

o   You do not qualify if you buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

·         Income Limitations:

o   Homebuyers who file as single or head-of-household taxpayers can claim the full $6,500 or $8,000 tax credit if their modified adjusted gross income (MAGI) is less than $125,000.

o   For married couples filing a joint return, the income limit doubles to $225,000.

o   Single or head-of-household taxpayers who earn between $125,000 and $145,000 are eligible to receive a partial first-time homebuyer tax credit. 

o   Married couples who earn between $225,000 and $250,000 are eligible to receive a partial first-time homebuyer tax credit.

o   You do not qualify if your income exceeds the limits.

·         Tax Limitations:

o   Qualified buyers can take the tax credit on their 2009 or 2010 income tax return.

o   In order to claim the credit, the purchaser must attach documentation of the home purchase to their tax return.

o   Dependents are not eligible to claim the credit.

o   A purchaser must be at least 18 years old on the date of purchase.  For married couples, only one partner needs to qualify.

o   Nonresident aliens do not qualify.

Here are some interesting quirks in the code:

·         If you purchased a qualifying home, you can rent out a couple of the rooms and still receive the full credit amount.

·         If you purchased a duplex and will live in half while renting the other, you qualify for 10% of the rented half's value up to $8,000 for new homeowners and $6,500 for current homeowners.  You may not use the total amount of the duplex towards your credit.

·         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.

If you're a first-time homebuyer and in a unique situation, I recommend clicking here to visit the First-Time  Homebuyer Credit Scenarios page.

For tax filing tips, please click here to visit the IRS help page.


***This article is intended for information purposes only.  For expert tax assistance the reader is advised to contact a tax expert or their accountant.***