Get the Latest Details on the
Homebuyer Tax Credit

Update:  November 6, 2009  -  President Obama has signed a new Homebuyer Tax Credit Bill

Here are the details as I have interpreted the bill

The revised homebuyer tax credit continues to offer the $8,000 tax credit to first-time buyers but now ads a $6,500 tax credit for existing homeowners purchasing a new home.  The timeframe has been extended from November 30, 2009 to April 30, 2010.   The difference this time is that you have to be under contract by April 30, 2010 and close by June 30, 2010.

Your income to qualify has changed as well.   Before single filers could earn up to $75,000 and couples could earn up to $150,000 to take advantage of the full tax credit before a phase out occurred if your income was greater than those thresholds.  Now, single filers can earn up to $125,000 and couples can earn up to $225,000 before a phaseout occurs.   This increase in allowable income to qualify will open this program up to a significantly larger group of people. 

Restrictions put in place to qualify include:

• The homes purchase price may not exceed $800,000

• You can receive up to the tax credit limit or 10% of the purchase price, whichever is lower.  (ie:  $70,000 home, you will receive $7,000.  $100,000 home, you will receive $8,000.  Same formula applies to existing homeowners.) 

• The home must be a primary residence (not an investment property or 2nd home)

• First time home buyers must have not owned a home in the last 3 years

• Existing homeowners will have to have lived in their existing home for the last 5 years

• The home can't be purchased from a relative

• The home can't be acquired as a gift or inheritance

• You can't have had an ownership interest in the property being acquired

• You will have to live in the home for 3 years.  If you sell your home within 3 years, the entire tax credit will be recovered by Uncle Sam at the sale. 

• If you are serving in the military, there may be additional time beyond April 30, 2010 to purchase your home and still qualify for the Homebuyer Tax Credit.  

Phaseout Examples  (Calculating Your Tax Credit)

According to the plan, the tax credit starts phasing out for couples with incomes above $225,000 and single filers with incomes above $150,000.

To break down what this phaseout means to homebuyers who are over those amounts, the National Association of Homebuilders (NAHB) offers the following examples:

Example 1: Assume that a married couple has a modified adjusted gross income of $235,000. The applicable phaseout to qualify for the tax credit is $225,000, and the couple is $10,000 over this amount. Dividing $10,000 by $20,000 yields 0.5. When you subtract 0.5 from 1.0, the result is 0.5. To determine the amount of the partial first-time homebuyer tax credit that is available to this couple, multiply $8,000 by 0.5. The result is $4,000.

Example 2: Assume that an individual homebuyer has a modified adjusted gross income of $162,000. The buyer’s income exceeds $150,000 by $12,000. Dividing $12,000 by $20,000 yields 0.60. When you subtract 0.60 from 1.0, the result is 0.40. Multiplying $8,000 by 0.40 shows that the buyer is eligible for a partial tax credit of $3,200.

Remember, these are general examples. You should always consult your tax advisor for information relating to your specific circumstances. 

How to get your tax credit!

Once you close on your home, you will receive a settlement statement.   When you file your tax return, you will complete IRS Form 5405 and include your settlement statement when you file your tax return.  If you close in 2009, you may file an amended 2008 tax return to receive your tax credit or wait until you file your 2009 return.    If you close in 2010, you will submit your 5405 and settlement statement with your tax return.  If you close after you filed your 2009 tax return, you can file an amended return later in 2010.  As always, consult with your tax preparer for specifics. 

Benefits of the Homebuyer Tax Credit to Our Economy

Since February 2009 when the original First-time Homebuyer Tax Credit was introduced as part of the American Recovery and Reinvestment ACT of 2009, roughly 400,000 homes have been sold.  The National Association of Realtors maintains that the Homebuyer Tax Credit has been a significant factor for home sales.   I would think our government agrees considering they extended the Tax Credit on November 6, 2009.

Here is how 400,000 home sales have helped our economy:

• Reduced the inventory of homes for sale (April 2009 there was a  10.1 month supply of homes, in September 2009 the inventory was reduced to a 7.8 month supply).

• Raised home prices (Case-Shiller Index showing home value increases in the 19 of the 20 major metro cities they monitor in September 2009). 

• Generated Tax Revenues for local municipalities  - Home sales bring in tax dollars to local governments in the form of transfer taxes, recording fees, among other tax revenue.

• People put money back into the economy  - when people move, they rent trucks, hire movers, buy paint, etc.  This spending helps our economy. 

• People stay employed.   With home sales, real estate agents earn an income, lenders have kept or increased their employees to meet the demand for loan applications, title and escrow companies keep employees to manage the purchase/sale transactions and so on.