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Can Millions More Benefit? Congress Extends, Expands Home Buyer Tax Credit

Posted by  on Nov 25, 2009
 

Congress has made the home buyer tax credit available until the end of June 2010 and expanded it to make more home buyers eligible. First-time buyers will still get up to $8,000 if they sign contracts to buy property before May 1, 2010, and close on their purchase before July 1. But wait, there's more...

Tax Credit Eligibility: Not Just First Timers

Some buyers who aren't buying their first home can take a credit too, and get up to $6,500 if they beat the new deadline. HR 3548 reads, "In the case of an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time home buyer for purposes of this section with respect to the purchase of such subsequent residence." So if you have owned a main residence for five continuous years out of the last eight, you qualify for a tax break too.

The credit applies to the purchase of principal homes (not vacation or rentals) with a sales price of $800,000 or less. The credit is phased out for individual taxpayers whose annual incomes exceed $125,000 and for joint filers whose incomes exceed $225,000. This is a substantial increase over the old limits of $75,000 and $125,000, respectively.

In addition, those in the armed forces who are serving overseas have been given until the end of May 2011 to buy a home and claim their credit.

What About Those Who Bought Homes in 2008 or Earlier in 2009?

The bill HR 3548 has a provision allowing those who want to take the credit immediately to file amended 2008 tax returns and claim it. But what about people who made purchases in 2008 or earlier in 2009 and would be eligible to claim it under the new bill but were not under the old? For example, what about a couple who were first-time home buyers last year but had a combined income of $200,000, which exceeded the old threshold? Could they amend their 2008 return and claim the $8,000 credit now?

Probably not--the text of the bill explicitly states that "the amendments...shall apply to residences purchased after November 30, 2009."

So unfortunately, those who didn't jump at the government's first offer got a better deal.

How Can You Take Advantage if You Do Qualify?

  1. Don't wait. Mortgage lenders like Bank of America stopped taking applications for purchases that had to close by the old deadline of November 30. The extension should give everyone some breathing room and allow you to negotiate more aggressively with your lenders.
  2. Shop now to get the best mortgage rates, and get preapproved by your lender as soon as possible. It's especially quick if you shop online and compare several lenders and programs.
  3. Make sure that your purchase agreement states that you must close prior to July 1 or you will not be obligated to go through with your purchase. Alternatively, you could impose a penalty equal to the amount of your credit if the purchase fails to close before July 1 and it's not your fault. It is always best to have everyone, from the realtor and lender to the seller, on the same page and working diligently to get your purchase closed on time. Be certain that your purchase is an arms-length transaction--no buying from a relative, or you don't get your credit.
  4. Keep copies of all your documents. The old incarnation of the first-time buyer's credit was saddled with thousands of fraudulent claims, so the IRS will be very careful about who it allows to claim this credit. Be sure that you are eligible, and be prepared to prove that your claim is valid. If you didn't claim a mortgage interest or property tax deduction in past years, but did in fact own a home for five of the last eight years, be prepared to prove it.

The new legislation has been designed to provide the housing market with a shot in the arm. Home purchases typically beget other purchases, such as furniture. Hopefully this extended and expanded legislation will fuel the economy and indirectly benefit even those who are not eligible to claim the credit.

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