I talk with people weekly about the incentives given by the government to encourage people to buy homes. So many are confused about the extension of the tax credit. They seem to have much mis-information.
Below is the current, and correct, information regarding the tax credit:
How much is the credit?
For 1st-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 longterm 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). So keep this in mind as it is not a guaranteed $8,000.
I helped a client get his CASH offer accepted on a short sale property the other day that was $79,900. How much is his credit? $7,990. Your purchase has to be $80,000 or higher to get the maximum tax credit available.
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.
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.
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.
Which properties are eligible?
Any single-family home (including condos, co-ops, townhouses) that will be used as a taxpayer's principal residence.
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.