On November 6, President Obama signed the Unemployment Insurance Bill, which contains the Homebuyer Tax Credit extension and expansion. The United States House of Representatives, by a vote of 430-12, joined the Senate in passing the bill. Many parts of the bill take effect immediately. As of the signing of the legislation, the income limits increase to $125,000 adjusted gross income on a single return and $225,000 on a joint return. In addition, the so-called "move-up" credit is also in effect as of November 6. Thus, individuals who have used a home as a principal residence for five consecutive years of the past eight years will be eligible for a $6,500 refundable tax credit for purchases completed between November 6, 2009, and April 30, 2010.
Many homebuyers desire to compare the previous tax credit provisions with the new provisions becoming effective on December 1, 2009. Use this chart for comparison.
Here are some of the most frequently asked questions on the changes to the Homebuyer Tax Credit. Visit the IRS web site for more information.
Question:
Existing homeowner credit: Must the new house cost more than the old house?
Answer:
No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.
Question:
I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time Igo to settlement, will I qualify for the new $6500 tax credit?
Answer:
Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.
Question:
I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?
Answer:
Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you're within the phase out range).
Question:
I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?
Answer:
No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
Question:
I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer:
Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is "consecutive." As long as he lived in that house for 5 years straight what he did since 3 years doesn't impact eligibility.
Question:
I am an eligible firsttime homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
Answer:
You do not have to close before December 1. Once the legislation has been signed, it will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.
Question:
Can a buyer claim the first-time homebuyer tax credit if buyer purchases using seller financing?
Answer:
Yes. So long as the buyer obtains the "benefits and burdens" of ownership of the property, then the buyer can claim the credit. This is true even if the seller retains legal title as seller would if the financing document used was a real estate contract instead of a note with deed of trust. Factors that indicate that a buyer has the "benefits and burdens" of ownership include: the right of possession; the right to obtain legal title upon full payment of the purchase price; the right to construct improvements; the obligation to pay property taxes; the risk of loss; the responsibility to insure the property; and the duty to maintain the property. All of these characteristics are true of a typical, arms-length seller financing arrangement using either a note with deed of trust or a real estate contract.
