The HomeBuyer Tax Credit Gets Extended and Expanded

The Homebuyer Tax Credit jumped its final hurdle on Friday, November 6, 2009, as the President signed a bill to extend the tax credit through June 30, 2010. The bill also opens up opportunities for non-first-time homebuyers as well.

While the tax credit has been extended it now has two deadlines instead of just the one. The first deadline states that the homebuyer has to sign a purchase agreement by April 30, 2010. The second deadline states that the homebuyer must close by Jun 30, 2010.

For those in the armed forces and persons stationed outside the United States on official duty for 90 days during the period from January 1, 2009 and before May 1, 2010 eligibility is extended for binding contracts signed by April 30, 2011 but must close by June 30, 2011.

Although increasing the tax credit to $15,000 was proposed, the maximum allowable tax credit remains at $8,000. Something added to this bill that wasn't there in the two previous bills is a maximum purchase price of $800,000. The homebuyer still has to occupy the property as their primary residence for the three years following the purchase or they must repay the tax credit in full.

Qualifying for the tax credit became a little easier for higher income homebuyers due to an increase in the income restrictions. Previously the income restrictions were $75,000 for single filers and $150,000 for joint filers. Those limits were increased to $125,000 for single filers and $225,000 for joint filers. The tax credit is reduced incrementally above $125,000 and $225,000, respectively and eliminated at $145,000 and $245,000, respectively.

Now that I've addressed the extension of the tax credit, I would like to move to the expansion of the tax credit. Those who currently own a home now and would like to purchase a different home are now able to take advantage of the tax credit. To qualify the current homeowner must have owned and occupied a primary residence for a period of five consecutive years during the last eight years. The tax credit available to a qualified homeowner is $6,500 instead of the $8,000 available to the first-time homebuyer. As a point of clarification, I think it is important to note that the new home does not have to cost more than the current home.

The tax credit remains a credit, which differs from a tax deduction in a very significant way. A tax deduction is a reduction of the amount of income one pays taxes on. A tax credit is a dollar for dollar reduction of the tax owed. If the homebuyer owes less than $8,000 in taxes the homebuyer will receive the difference in a refund (i.e., If your tax bill is $4,000, you will now owe zero and receive a refund of $4,000).

While the tax credit has served to increase homebuying activity since its inception, Congress realized that to allow the tax credit to expire now could slow the momentum enjoyed to this point. The mix of phenominally low interest rates, reduced home prices, home sellers and lenders willing to pay closing costs, and the huge tax credit make this the best time in 10 years to buy a home. Who do you know who could and should take advantage of this awesome opportunity? I would be honored if you would refer them to me. I can be reached on my mobile number at (619)994-1110 or by e-mail at Shawn@YourFavoriteLender.com.