Homebuyer Tax Credit Extension and Expansion

President Obama signs homebuyer tax credit bill

Posted By PAR Staff Report On November 6, 2009 @ 1:31 pm In Government Affairs

President Barack Obama signed The Worker, Homeownership and Business Assistance Act of 2009 into law today.

The law extends the present $8,000 tax credit for first-time homebuyers through April 30, 2010. Current homeowners are eligible for a $6,500 tax credit through April 30, provided they have lived in the home they are selling, or have sold, as the principal residence for five consecutive years during the past eight years.

If potential homebuyers have a binding contract on or before April 30, they will have 60 days to close the transaction.

PAR president Greg Herb says this hopefully gives more Pennsylvanians the opportunity to purchase a home.  Listen:  

Income limits for eligible homebuyers are expanded to $125,000 for single buyers and $225,000 for couples. The purchase price of the home cannot exceed $800,000.

Qualifying service members have until April 30, 2011 to take advantage of the first-time homebuyer credit. If ordered to deploy and forced to sell the home within three years, the service member will not have to repay the credit.

To help guard against fraud, buyers are required to attach documentation of purchase to their tax return. The person claiming the credit must be at least 18 years old.

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NAR Frequently Asked Questions:

 

Q.  Existing homeowner credit:  Must the new house cost more than the old house?  

A.  No.  Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.  

Q. I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home.  I have lived in my current  home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?

A.  Yes.  The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed).  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.  

Q.  I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits.  If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?  

A.  Yes.  The new income limitations go into effect as soon as the President has signed the bill.  The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

Q.  I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6500 tax credit?

A.  No. The $800,000 cap on the cost of the purchased home is firm at $800,000.  Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.   

Q.  I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?

A.  Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be  eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight, what he did since 3 years doesn’t impact eligibility.

Q.  I am an eligible first-time homebuyer.  I entered into a contract to purchase on November 1, 2009.  Do I have to go to closing before December 1?  How does the extension date affect me?

A.  You do not have to close before December 1.  Once the legislation has been signed, it will be as if the Nov. 30 date had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.

To  learn more, download this homebuyer tax credit changes chart from NAR. ^[1]

More information on the tax credit and what it means to Buyers and Sellers:

 Changes to the Homebuyer Tax Credit Law

 Frequently Asked Questions About the New Bill

 Listen to NAR President Charles McMillan's Podcast About the Bill Passing

 In Depth: 2009 First-Time Homebuyer Tax Credit 

 

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