The federal tax credit for first-time and move-up homebuyers is an attractive and lucrative stimulus program that provides a strong incentive to buy. Here is an executive summary of the main provisions of the Homebuyers' Tax Credit that was recently extended (previously expired 11/1/2009) and expanded but expires on 4/30/2010. For IRS details go to first time homebuyer or repeat homebuyer links for more information about filing requirements.
HOW DOES IT WORK?
The federal tax credit reduce the amount of taxes that you owe when you file your federal return for the year you purchased your home. You will be able to either (1) subtract the credit from any taxes you may otherwise owe, reducing your tax liability or (2) add the credit to amounts due to you from the federal government, thereby increasing your refund. Under normal circumstances, if you are having the proper amounts withheld from your regular earnings throughout the year, you will be entitled to a refund.
HOW MUCH IS THE CREDIT?
The federal tax credit is equal to 10% of the purchase price or your home up to $8,000. If you purchase a home for less than $80,000 you will be eligible for less than the maximum. If you purchase a home for greater than $80,000, you will be limited to $8,000. For example, if you buy a home for $125,000 you will be limited to the maximum of $8,000 since 10% of the purchase price exceeds the limit.
WHO IS ELIGIBLE?
The newly-enacted extension of the federal tax credit expands eligibility beyond first time homebuyers! While first time homebuyers are still eligible, homeowners that have been in their current residence greater than five years are also able to claim the credit. For all homebuyers, however, their are income limitations. The full credit is available for individuals earning less that $125,000 with a phase out up to $145,000. For marriage homebuyers filing jointly, the full credit is available up to $225,000 with a phase out up to $245,000. Contact your tax advisor for more details.
CAN I "MONETIZE" THE CREDIT NOW (AT CLOSING)?
For residents of the state of Alabama, no. Certain states have created programs that allow the credit to be monetized which means the credit would be immediately available for the homebuyer.
EFFECTIVE DATE
The extended federal tax credit is effective November 7, 2009 and the purchaser has until July 1, 2010 to close a transaction that was put under contract by April 30, 2010.