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The $8,000 credit is in effect through the end of June. Homebuyers must sign a contract before April 30 and close by June 30. Single buyers can now earn up to $125,000 and still get the full credit while a married couple can earn $225,000.
The bill also made more homeowners eligible to claim the credit on their taxes. As well as first time buyers, those who have owned and occupied a residence for at least five years out of the past eight can claim a $6,500 tax credit if they close on a purchase by the end of June.
How it helps the economy
It provides opportunities to get into a home and stabilize the housing market during this period of low interest rates. People might be wondering whether they should wait for a better package to come from Congress but it is highly unlikely because then the value of the stimulus is gone. It is essential to get under contract by April 30 and close by June 30 to receive the tax credit.
A binding contract by April 30 can have contingencies. Both parties must agree and be signed by both parties with an absolute closing of June 30.
DETAILS OF THE TAX CREDIT
Who is Eligible and How Much?
First Time Buyers
10% of sale price up to $8,000
Must not have owned a principal residence for the past 3 years
10 % of sale price up to $6,500
Must have occupied a residence for 5 consecutive out of the past 8 years previous to the date of settlement.
Annual Income Limitations for Individuals
$125,000 or less gets full credit amount
$125,001- $145,000 gets a partial credit amount
Above $145,000 does NOT receive a credit
Annual Income Limitations for Married Couples
$225,000 or less gets full credit amount
$225,001- $245,000 gets a partial credit amount
Above $245,000 does NOT receive a credit
The property must be a single family residence – including condos and townhomes- that is the buyer’s principal residence.
The sale price of a purchased home must be $800,000 or less. If the sale price exceeds $800,000 no credit is given. The cap is absolute. Congress didn’t want a tax credit being given to someone buying a million dollar house.
Do You Have to Repay the Credit?
NO –unless you sell or move out within 3 years and if so, it has to be fully repaid.
A. A person wants to buy a new home but doesn’t want to sell their old home
Eligible –YES, if the new property is the primary residence for 3 years. There is no requirement that the old home has to be sold.
B. A person wants to buy a new home that costs less than the old home
Eligible –YES, there is no price requirement other than the $800,000 sale price limitation. The relative cost of the new home vs. the old home does not matter.
C. A person owns a home but has rented it out for the last 3 years. During that time, the person lived in a home that they don’t own and then decides to buy a new home
Eligible –YES, buyers with no ownership interest in a principal residence for the last 3 years are considered first-time buyers
D. A person hired a contractor to build a home that was already purchased but they don’t live in the home yet
Eligible –YES, as long as they occupy the home by the expiration of the credit. The date of occupation would be treated as the purchase date
E. The owner cannot qualify for the purchase of a home on their own, needs a cosigner and both names are on the mortgage
Eligible –YES for the homeowner and NO for the cosigner. The cosigner does not receive any part of the credit. The homeowner must use the home as the principal residence.
F. Two unmarried people purchase a home and file tax returns as single individuals
The annual income would not be considered a total. The total amount of a credit for a structure cannot exceed $8,000.
G. Two people are going to get married but they purchased a home when they were single. One person was a first-time home buyer and the other was not. They file the tax return as a joint return.
Both people must be 1st time home buyers to get the $8,000 credit. These situations are very complicated and careful analysis is needed. If the couple is married but filing separate returns they may be eligible for a credit of $4,000.
H. A person owned a home and occupied it for 5 years. That person marries someone who has never owned a home. They decide to sell their home and purchase a new home
Eligible –Yes, for a Repeat Buyer Credit. Neither is eligible for a first-time buyer credit even if filing separately. If either spouse has owned a home then for legal purposes, they both have owned a home.
I. A person closes on a 1st home in the tax credit time period and then marries someone who has owned a home before.
Eligible – YES, rules apply based on settlement date.
Some Additional Notes
Any transaction through family members is NOT eligible
If a purchaser dies within the 3 year residency requirement, the estate is NOT responsible to repay the credit.
Proof of the 5 year residency requirement can be in the form of property tax receipts, utility bills, property insurance records and property tax records.
Receiving the Credit
The credit is claimed on the tax return including documentation of the purchase and the IRS form 5405 for claiming the credit. The credit will be applied to your total tax liability. If the credit is more than how much you owe, you will receive a refund. The refund check may take up to 6-8 weeks.
If you already qualify for a refund, the tax credit is applied in addition to the tax refund amount.
The Internal Revenue Service (IRS) is responsible for implementing the credit. Full details can be found at www.irs.gov.