Facts About The Federal Homebuyer
Tax Credit Expansion & Extension

The United States Congress has passed a bill that extends and expands the Federal Homebuyer Tax Credit, and the President signed it into law on Friday, November 6th, 2009. Here is a brief overview of the program:

• The current $8,000 federal tax credit for first-time homebuyers is extended to April 30, 2010.
• And now, buyers who have owned and resided in their current home for any 5-consecutive year period during the last 8 years prior to purchase of a new home would be eligible for tax credits of up to $6,500.
• To be eligible to claim the $8,000 credit, first-time buyers must enter into a written binding contract for purchase before May 1, 2010 and must close on the purchase before July 1, 2010.
• To be eligible to claim the $6,500 credit buyers who have owned and resided in a home for any 5-consecutive year period during the last 8 years, must close after the date of enactment (November 6, 2009), and prior to July 1, 2010.
• To qualify for either credit, the price of the home being purchased cannot exceed $800,000.
• The new law will increase the income ceiling for qualification from $75,000 to $125,000 for individual taxpayers.
• And the income ceiling for qualification increased from $150,000 to $225,000 for joint filers.
• The credit would be extended an additional year, until June 30, 2011, for members of the military serving outside the United States for at least 90 days.
• “This is probably the last extension,” said Senator Johnny Isakson of Georgia, a former real estate executive who championed the credits.

1. Carryover Provisions

   Certain important provisions from the original tax credit remain in place. To qualify for the credit, a homebuyer must be a U.S. citizen or have permanent resident status. The income limits are calculated based on a taxpayer’s modified adjusted gross income. Homebuyers retain the option to claim the credit in the previous tax year. If a homebuyer claims the credit and sells their home within three years, the credit is subject to recapture. For More information go to: www.federalhousingtaxcredit.com

2. Release Date November 6, 2009

   Nothing contained herein shall constitute tax advice; homebuyers should consult with their tax advisor. Tax laws are subject to change.

   SOURCE(S): STEPHEN OHLEMACHER, Associated Press Writer, 8:53 a.m. EST, November 5, 2009; and JIM ABRAMS, Associated Press Writer, 1:20 a.m. EST, November 5, 2009, and 7:23 a.m. EST, November 6, 2009.

   Here are some of the most Frequently Asked Questions on the changes to the Homebuyer Tax Credit, courtesy of the National Association of Realtors:

   Q:  Existing homeowner credit: Must the new house cost more than the old house?
   A:  No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6,500 credit.

   Q:  I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6,500 tax credit?
   A:  Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

   Q:  I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?
   A:  Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

   Q:  I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6,500 tax credit?
   A:  No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

   Q:  I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
   A:  You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.