It's Official: More Homebuyers Qualify for Tax Credit
Today, November 6, 2009, President Obama signed an expanded version of the $8,000 first-time home buyer tax credit that was set to expire on November 30, 2009. The new version of the tax credit goes into effect on November 7, 2009 and has the potential to stimulate the housing market even more than the old version. More people will qualify under the new rules. Although the tax credit remains at $8,000 for home buyers who have not owned a primary residence in the last 3 years, it has been expanded to include a $6,500 tax credit for home buyers who have lived in their current primary residence for at least 5 consecutive years out of the past 8 years. Under the old rules, move-up homebuyers did not qualify. Consider these examples:
Example 1: Jane purchased a home in 2002, lived there for 5 years as her primary home, moved out in 2007, and turned that home into a rental property. If Jane decides to buy a new primary residence today, she would qualify for the $6,500 tax credit because she lived in the same residence as her primary for at least 5 consecutive years out of the past 8.
Example 2: Harry purchased a home in 2004, and lived there for the past 5 years as his primary home. If Harry decides to buy a new primary residence today, he would qualify for the $6,500 tax credit because he lived in the same residence as his primary home for at least 5 consecutive years out of the past 8.
Example 3: Nicole purchased a home in 2006, and lived there for the past 3 years as her primary home. If Nicole decides to buy a new primary residence today, she would not qualify for the $6,500 tax credit because she did not live in the same residence as her primary home for at least 5 consecutive years out of the past 8.
Example 4: Bob, an existing homeowner, signed a contract on October 22, 2009, to purchase a new home. He has lived in his current home for more than 5 consecutive years and is within the new income limits. He will go to settlement on November 22, 2009. Bob will qualify for the new $6,500 tax credit as 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.
The tax credit applies to homes that are purchased for less than $800,000 and before May 1, 2010. If you sign a binding contract to purchase a home before May 1st, you would need to close on the transaction before July 1, 2010. This is similar to a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.
The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. This means that more people will qualify for the credit -- especially in parts of the country with higher costs of living. This should help stimulate parts of the housing market that may not have been impacted by the old versions of the credit. Some of these are feeder markets for the Upper Cumberlands. As these sellers relocate, higher sales in those markets could translate into more sales here.
There are many creative ways of structuring your home purchase transaction. The licensed and certified mortgage professionals at Reliant Bank can help maximize the benefits of the credit. Here are a few examples:
* The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence. You could live in one unit and rent out the others.
* If 2 unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income, or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)
* The credit applies even if you have co-signers on your mortgage loan. Today's good news regarding the expanded home buyer tax credit will have a positive impact on housing nationally. It is vitally important to share this information with our community so that we can benefit here at home as well.
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