Today, President Obama signed legislation extending the first time home buyer tax credit. The credit was also extended to include many existing homeowners.
The credit covers purchases of single family homes put under contract and settled by certain deadlines. It provides up to $8,000 for first time home buyers, and up to $6,500 for existing homeowners who purchase a qualifying home. The tax credit for existing homeowners is an extension of the first time home buyer credit to this group. Previously, existing homeowners couldn’t benefit from this tax break.
The full credit is available to single filers earning up to $125,000 and joint filers earning up to $225,000. If you’re are a single filer earning more than $145,000 or a joint filer earning more than $245,000, you’re not eligible for any credit. Between those income levels, the credit is lowered as your income increases. Keep in mind that the credit is a direct dollar-for-dollar reduction in your tax bill for the year. The sooner you act, the sooner you can claim the credit on your tax return.
Even if you executed a contract before this legislation was enacted, it’s the closing date that counts. That’s particularly important for current homeowners, who under the prior law were not eligible for any credit. That means a current homeowner who was under contract in October but settles on or after November 7th is potentially eligible for the credit, subject to the other restrictions.
For new home buyers, the new law extends the old November 30th closing deadline. That means that as long as you close by July 1, 2010 and otherwise meet the requirements for the credit, you can claim the credit.
You can’t claim the credit if you’re buying a home from a relative. Under the old law, that meant the credit could not be used if you purchased a home from a lineal relative. Under the new law, that restriction has been extended to also block the credit from those buying a home from a spouse’s lineal relative.
There’s a bonus for the large number of military and foreign service families that live or want to relocate to our area. If you’re a member of the military, foreign service, or intelligence community and are on “official extended duty” where you spent at least 90 days outside the US during January 2009 through April 2010, you’ll have an extra year to take advantage of the home buyer credit.
Here’s a recap of the important points:
- you must execute a contract by May 1, 2010 and close by July 1, 2010
- you must be purchasing a principal single family residence
- for first time home buyers, the credit is equal to 10% of the purchase price up to a maximum of $8,000
- for closings on or after November 7th, existing homeowners who have lived in their current home for 5 of the last 8 years are eligible for a credit of up to $6,500
- homes that cost over $800,000 are not eligible for any credit
- a first time home buyer is defined as someone who hasn’t owned a home in the past 3 years
- for married couples filing a joint return, both must meet the criteria
- there are income restrictions on the credit
- the credit doesn’t apply if you purchase a home from your or your spouse’s relative
I’ve found several good summaries of these changes, one from the Virginia Association of Realtors and another from Virginia Homeowners Alliance. The National Association of Home Builders has also created their own site to provide more information on the tax credits.
These tax credits should further help our otherwise relatively strong real estate economy. For Fall 2009, Builder magazine picked our metro area as the 3rd strongest real estate market in the country, up from number 10 earlier in Spring 2009. The key factors: continued job and population growth, 2 things necessary for rising real estate values.
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