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Extended Home Buyer Tax Credit: What You Need to Know

Posted by  on Nov 25, 2009
 

In early November, Congress passed a measure to make the Home Buyer Tax Credit available to more people by increasing income limits and extending it to people who aren't first-time home buyers. But if you aren't careful about buying your home, you might not get your credit after all. Here are things to be wary of.

Under the new credit extension, first-time buyers will be able to get up to $8,000 if they get under contract to buy property before May 1, 2010, and close on their purchase before July 1. But there's more.

Home Buyer Credit Not Just for "Virgins"

Under the new law, some who aren't buying a first home are eligible for up to $6,500 if they beat the new deadline. Anyone who has owned a primary residence for five of the last eight years can also take the credit. And first-timers who couldn't qualify under the old income restrictions ($75,000 for singles and $125,000 for couples) may qualify under the new ones. But there's a catch.

Look Out for the "Catch"

The credit applies only to certain purchases. Here are the rules:

  • The purchase must be for a primary residence (not a vacation or rental property).
  • The purchase price is limited to no more than $800,000.
  • Your income can't exceed $225,000 for married filers and $125,000 for singles.
  • You can't buy from a relative. The transaction must be "arms-length."
  • You must close within the correct range of dates. If you are buying a home and you didn't qualify under the old rule but you do under the new, don't close on your purchase until after November 30 because otherwise you won't qualify.

Can Qualified Home Buyers Take the Credit if They Already Bought?

The bill, HR 3548, lets those who want to take the credit immediately file an amended 2008 tax return and claim it. But what if you are eligible to claim it under the new bill but were not under the old? For example, what if a single woman who was a first-time home buyer last year couldn't take the credit then because she earned $75,001? Can she amend her 2008 return and take the credit today?

Probably not, unfortunately for her and others. The bill reads: "EXTENSIONS--The amendments…shall apply to residences purchased after November 30, 2009."

How Can Those Who Qualify Take Advantage?

1. Move quickly to have access to the best mortgage lenders and lowest mortgage interest rates. Mortgage lenders like Bank of America quit accepting applications for purchase transactions that needed to close by November 30. While the extension gives everyone some breathing room, waiting until the last minute means having fewer lenders to choose from. (The best lenders are very busy because they offer the lowest mortgage rates.)

2. Shop carefully. Get mortgage quotes from multiple lenders quickly. To get the best mortgage rates, get yourself preapproved as soon as you have chosen your mortgage lender. It's especially easy to do this online, and that's good when time is of the essence.

3. Get it in writing. Make sure that your purchase agreement requires that you close before July 1. If the sale closes late and it's not your fault, you then have the option of backing out and getting your deposit back. Or you may want to request a refund equal to the amount of your credit if the seller causes you to miss your deadline.

4. Document carefully. Unscrupulous taxpayers are claiming credits they have no right to, and the IRS is pushing back. The agency will be very careful about who it allows to claim the credit. So be sure that you are eligible, avoid the "catches,"and be prepared to prove that your claim is valid.

The new legislation has been designed to boost property prices and support real estate markets in the US. Hopefully those eligible will make their purchases carefully and be able to take full advantage.

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