New Legislation Extends the Federal Tax Credit for First-Time Home Buyers and Expands the Incentive to Current Homeowners

(TOPEKA, KS) – For many Americans, home ownership is a key step towards achieving the American Dream.  Bryon Schlosser, CEO of Coldwell Banker Griffith & Blair American Home, said, “It’s a great time to be buying or selling a home in Topeka.  Prices and inventories are stable, mortgage rates are at historic lows, and for the next few months we have new government incentives.”

On November 6, 2009, President Obama signed “The Worker, Homeownership, and Business Assistance Act of 2009,” bringing that dream one step closer to reality.

To help consumers who are considering purchasing a primary residence, Coldwell Banker Griffith & Blair American Home has summarized the details of this new legislation and what it means for those thinking about entering the market:

• Eligibility: The tax credit is now available for first-time home buyers and repeat homeowners. A first-time home buyer is defined as an individual who has not owned a principal residence during the three year period prior to the purchase.  For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. For example, if you have not owned a home in the past three years but your spouse has owned a principal residence, neither you nor your spouse qualifies for the first-time home buyer tax credit.

A repeat homeowner is defined as someone who has owned and resided in a home for at least five consecutive years within the last eight.

• The federal tax credit amounts to 10 percent of the cost of the home, up to a maximum credit of $8,000 for first-time homebuyers and $6,500 for current homeowners.
  
  • e.g., If a home costs $60,000, the allowable credit for both a first-time homebuyer and a current homeowner would be $6,000. If a home costs between $80,000 and $800,000, then the allowable credit for a first-time homebuyer would be $8,000 and for a current homeowner, $6,500.

• Individuals whose Form 1040 filing status is “single” are eligible for the tax credit if their income is no more than $125,000. Individuals who file a joint return are eligible if they have no more than $225,000 in income.

Single taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.

• The federal income credit can be claimed on one’s individual or joint tax return for the purchase of any single-family home (newly-constructed or resale, single-family detached, townhomes or condominiums) between the dates of November 7, 2009 and April 30, 2010. Home purchases subject to a binding sales contract signed on or before April 30, 2010 will also qualify for the tax credit provided closing occurs on or before to June 30, 2010.
• The tax credit is refundable. A refundable credit means that if the amount of income taxes a home buyer owes is less than the credit amount he / she qualifies for, the government will send a check for the difference.  In essence, the credit is a dollar-for-dollar reduction in what taxpayers owe for the calendar year they purchase their home but the taxpayer may also amend the prior year’s return to claim the credit more quickly.
  • e.g., A first-time home buyer who qualifies for the full $8,000 tax credit and owes $5,000 in federal income taxes would owe nothing to the IRS and receive a $3,000 payment from the government.  A repeat buyer who qualifies for the full $6,500 tax credit and owes $5,000 would pay nothing to the IRS and receive $1,500 back from the government. If the repeat buyer is due to get a $1,000 refund, he / she would get $7,500 ($1,000 plus the $6,500 move-up buyer tax credit).

The tax credit is a true credit. It does not have to be repaid unless the homeowner sells or stops using the home as their principal residence within three years after the purchase.   In that case, the full credit amount will be recouped on the sale.  There are exceptions in the event of the homeowner’s death or if a sale results in a loss.

For further understanding of how the extended tax credit differs from the previous version and how it can benefit first-time and repeat homebuyers additional information can be found on CBKansas.com.

This is based on information available as of November 2009 and is not meant to be tax or legal advice.  As with any tax law change, consumers should check with a tax advisor regarding availability, eligibility and possible timing of any tax credit.