By Jason Alderman
A key feature in last year’s economic stimulus bill was the federal income tax credit designed to help first-time homebuyers. Now, as part of legislation signed by President Obama in November 2009, that tax credit has been extended – as well as expanded to include a credit for current homebuyers looking to buy a new primary residence.
Here’s how it works:
The deadline for the first-time homebuyer credit was extended to include purchases where a binding contract is signed by April 30, 2010, and closed by June 30, 2010.
A few rules:
• “First-time homebuyers” are those who have not owned a home during the previous three years.
• The credit is worth 10 percent of the purchase price, up to a credit limit of $8,000 on homes costing $800,000 or less; homes priced above that are ineligible.
• Qualifying income thresholds have been raised to $125,000 in modified adjusted gross income (MAGI) for individuals and $225,000 for married couples filing jointly, from the previous $75,000 and $150,000, respectively. (MAGI is usually found on line 38 of your federal income tax return).
• The credit phases out for individuals with MAGI between $125,000 and $145,000 and $225,000 to $245,000 for joint filers.
• If you are married, both you and your spouse must qualify as first-time homebuyers to receive the credit; also, each of you must be at least 18 years old at closing and neither can be claimed as another taxpayer’s dependent.
• Purchase transactions between immediate family members are not eligible.
• You must attach a copy of the purchase settlement agreement to your tax return.
• You must repay the credit if, within three years of purchase, the home is no longer your primary residence. (Certain exceptions will be made for military personnel and when one of the homeowners dies.)
• Qualified housing includes newly constructed or existing single-family houses, condominiums, manufactured or mobile homes – even boats that function as your principal residence.
• You can claim the tax credit for a 2010 purchase on either your 2009 (via an amended return, if necessary) or 2010 taxes.
The good news in this bill for current homeowners is that they too may qualify for a tax credit if they want to move to a new primary residence, whether because of a job transfer, downsizing at retirement or moving to a larger home or a new community.
Although the same income thresholds, purchase cost limit and closing deadlines apply, there are a few unique features:
• Instead of $8,000, the maximum credit amount is $6,500.
• You must have lived in your current home for five consecutive years out of the last eight.
• The newly purchased home must become your primary residence and not a second home or investment property.
• You are not required to sell your current residence; thus, you could rent it out or turn it into a second home.
Because of the complexity of tax law governing these transactions, consult your tax advisor before finalizing a purchase or deciding which year to claim the credit.
Jason Alderman directs Visas financial education programs. Sign up for his free monthly e-Newsletter at www.practicalmoneyskills.com/newsletter.