On November 6, 2009, President Obama signed a bill into law that extends the $8,000 first-time homebuyers tax credit program, initially scheduled to end in Novmeber, to April 2010. The expanded tax credit is part of a legislation that extends unemployment benefits by at least 14 weeks in 50 states.
Besides extending the tax credit for first-time homebuyers, the program also makes a tax credit of up to $6,500 available to existing homeowners who are looking for a ‘step-up’ by selling their current home and buying another one during the same period.
While the first-time homebuyer tax credit has already helped many potential homebuyers transition into their first homes, expanding the credit to existing homeowners may help push more qualified buyers to purchase homes. Experts are debating over whether this extension will help revive the housing market and increase home sales or if it would only create another bubble in the market.
Below are the highlights of the new tax credit law:
For First-Time Homebuyers
- First-time home buyers can claim the $8,000 tax credit by signing a sales contract before May 1, 2010 and close on the sale before June 30, 2010.
- Those who serve in the military and who are on extended duty outside the United States can claim the credit till July 1, 2011, provided they sign the sales contract before May 1, 2011.
- The maximum income limit for receiving the tax credit has now been raised from $75,000 for single buyers to $125,000. The income limit for married couples has also been raised from $150,000 to $225,000. A partial tax credit is available for single buyers making between $125,000 and $145,000 and for married couples making between $225,000 and $245,000.
- The tax credit does not have to be repaid unless you sell your home within three years.
For Existing or Repeat Homebuyers
- Homebuyers who have lived in their current home for at least five years and wish to buy a new home are eligible for a tax credit of up to $6,500.
- The deadlines and income limits for repeat homebuyers are the same as first-time homebuyers. Both existing and first-time homebuyers are not eligible for the tax credit if the purchase price of the home is more than $800,000.
- The new home must be the homebuyer’s principal residence; the tax credit cannot be used to buy a vacation home.
- After the Treasury reported that many taxpayers who were not eligible for homebuyer credit had wrongly claimed it, certain anti-fraud provisions have been added to the new law.
- Those listed as dependents on someone else’s tax returns cannot claim the tax credit. Taxpayers must also be at least 18 years of age of the date of purchase to be eligible for the tax credit.
- Homebuyers will not be required to attach a copy of their settlement agreement to the tax return.