President Signs Extension of First Time Home Buyers Credit and New credit for current owners buying a home

The President has signed into law an extension of the $8,000 first time home buyers credit which also added a new $6,500 tax credit for existing homeowners buying a new principal residence. The details of the new law are as follows:

For homes purchased between between January 1, 2009 and April 30, 2010:

1) The credit is 10% of the homes purchase price, limited to $8,000, and does not have to be paid back (unless the property is sold within 3 years - See #7 below).
2) The credit is limited to first time home buyers and principal residences. Any home that will be used as a principal residence will qualify for the credit, provided that if the home is purchased after November 6, 2009 it must be for a price less than or equal to $800,000. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured homes (also known as mobile homes) and houseboats.
3) The definition of first time home buyer is someone who did not own a principal residence within 3 years of the date of closing of the new purchase.For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.
4) The credit is only for a limited time. The contract date of the sale must be between January 1, 2009 and April 30, 2010. However, the law also allows home sales occurring by June 30, 2010 to qualify, provided they are due to a binding sales contract in force on or before April 30, 2010.
5) Income limits for phase out of Tax credit
a)To receive the full credit, for sales through November 5, 2009, single taxpayers must have earned (modified adjusted goss income) less than $75,000 and married taxpayers must have earned less than $150,000. The tax credit is phased out proportionally for taxpayers who exceed these income limits by up to $20,000. The credit is zero at an income level of $95,000 for single taxpagyers, and $170,000 for married taxpayers.To determine modified adjusted gross income (MAGI), add to AGI certain amounts such as foreign income, foreign-housing deductions, student-loan deductions, IRA-contribution deductions and deductions for higher-education costs.
b) For sales occuring after November 6, 2009, the income limit for single taxpayers is $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with a modified adjusted gross income (MAGI) of more than $125,000 for single taxpayers and $225,000 for married taxpayers filing a joint return. The phaseout range for the tax credit program is equal to $20,000. That is, the tax credit amount is reduced to zero for taxpayers with MAGI of more than $145,000 (single) or $245,000 (married) and is reduced proportionally for taxpayers with MAGIs between these amounts.
6) The credit is a "refundable credit", which means the credit is deducted from the taxes owed, and if the net result is less than zero, the amount is refunded to the taxpayer. Therefor, even if you pay no taxes, you will receive the credit which will be paid to you. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.
7) The buyer must hold the property for at least 3 years or the tax credit wil have to be returned (exceptions are for sale due to death or divorce ).
8) Those people who took advantage of the $7,500 first time home buyers credit in 2008, must still pay the credit back over a 15 year period.
9) Two unmarried individuals buying a principal residence may allocate the credit "in any reasonable manner"
10) The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year´s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this. Therefor, you can choose the year that yields the largest credit amount.
11)Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

Federal Tax Credit for qualified move-up buyers ( not first time home buyers):

1) The tax credit is for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010 (or purchased by June 30, 2010 with a binding sales contract signed by April 30, 2010).and is equal to 10 percent of the home´s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
2) The law defines a tax credit qualified move-up home buyer ("long-time resident") as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
3) The income limits are the same as for the $8,000 first time home buyers credit described above for homes purchased after November 6, 2009.
4) The law allows taxpayers to choose ("elect") to treat qualified home purchases in 2009 as if the purchase occurred on December 31, 2008 (or if in 2010, December 31, 2009). This means that the previous year´s income limit (MAGI) applies and the election accelerates when the credit can be claimed. A benefit of this election is that a home buyer in 2009 or 2010 will know their prior year MAGI with certainty, thereby helping the buyer know whether the income limit will reduce their credit amount. Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this. Therefor, you can choose the year that yields the largest credit amount.
5)Taxpayers buying a home who wish to claim it on their prior year tax return, but who have already submitted their tax return to the IRS, may file an amended return claiming the tax credit using Form 1040X. You should consult with a tax professional to determine how to arrange this.

**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**