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The measure is part of H.R. 3548, the Unemployment Compensation Extension Act. Under the law, the deadline for the first-time buyer tax credit of up to $8,000 is extended through April 30, 2010. Buyers will need to have a contract to purchase in place by April 30 and will have until July 1, 2010 to close. The credit also is expanded to provide up to a $6,500 tax credit for qualifying prospective buyers who already own their home and who have lived in it as their principal residence for five years.
Here are some basics to know about the new tax credit. First-time buyers who have not had interest in a principal residence for three years are still eligible, and the maximum amount remains the same – $8,000 (or $4,000 for married couples filing separately). Current homeowners, who have consecutively maintained the home they want to sell as their primary residence for five of the last eight years, are also eligible. However, the maximum amount for those homeowners is lower: $6,500 (or $3,250 for married couples filing separately). Qualifying buyers must sign a purchase agreement by April 30, 2010, and close before July 1. The tax credit may not be used to purchase a home for more than $800,000. Vacation homes are ineligible. The income limits to earn the maximum for both tax credits have been raised to $125,000 for single buyers and $225,000 for married couples. All buyers who want to get the credit must include documentation of the purchase on their tax returns. The credit is extended until May 1, 2011, for members of the military serving outside the United States for at least 90 days.
Frequently asked questions: Who can use the homebuyer tax credit? First-time buyers and long-time homeowners who buy a replacement principal residence. (The law defines a first-time buyer as an individual who has not owned a home in the three years prior to the day of purchase. According to the IRS, the longtime homeowner must have lived in the same principal residence for any five consecutive-year period during the eight-year period that ended on the date the replacement home is purchased.) How much is the credit? For first-time buyers the credit is equal to 10 percent of the cost of the home up to a maximum of $8,000 (or $4,000 for a married individual filing separately). For long-term homeowners, the credit is equal to 10 percent of the purchase price up to $6,500 (or $3,250 for a married individual filing separately). What is the deadline for using the tax credit? Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. What is the deadline for military service members? The credit is extended through May 1, 2011, for members of the military serving outside the United States for at least 90 days. Which properties are eligible? Any single-family home (including condominiums, co-ops, townhouses) that will be used as a taxpayer’s principal residence. Vacation properties are not eligible; the tax credit may not be used to purchase a home for more than $800,000. Are there income limitations? People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. How do I claim the tax credit? For qualifying purchases, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. The credit reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar. It is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed. The credit is claimed using IRS Form 5405. Does the credit have to be repaid? No, as long as the buyer stays in the home for at least three years. If the home is sold Within three years of the date of purchase, the buyer is required to pay back the full amount of the credit, including any refund received. |