More than likely, if you are in the market for a home or considering whether now is the time to purchase, you know that President Obama extended the tax credit for first-time homebuyers through June 30, 2010. As a bonus, this bill also offers opportunities for those who are not buying a home for the first time.
Maybe it is this incentive that has you leaning towards becoming a homeowner now, but you still have questions as to who is eligible, what the parameters are, and what it really means for your bottom line.
Let us break it down for you.
What exactly is a tax credit?
It is a direct reduction in tax liability owed by a person to the IRS. If no taxes are owed, the IRS will simply issue a check for the amount of the tax credit. This particular tax credit does not require repayment unless the home, at any time during the first 36 months of ownership, is no longer a person’s primary residence.
Who is eligible for the tax credit?
First-time homebuyers are classified as those who have not owned a home within the last three years.
Current homeowners are those who have owned and occupied a primary residence for a period of five consecutive years during the last eight years. If you happened to sell a home in 2006 and have been renting for the past few years, you may be eligible.
In both cases, single taxpayers and married couples who file jointly may qualify for the full tax credit amount.
If you are married and either spouse has owned a primary residence in the last 36 months, neither would qualify.
If you are single and owned a second home or an investment property, you would be eligible.
How much are you eligible to receive?
For first-time homebuyers the credit is 10% of the home’s purchase price up to $8,000. For example, if a home is purchased for $75,000, the maximum amount of the credit will be $7,500. If the home is purchased for $100,000, the amount of the credit will be the maximum which is $8,000.
For current homeowners the tax credit is up to $6,500.
Regardless if you are a first-time homebuyer or a current homeowner, in order to receive the tax credit the home you purchase cannot exceed $800,000.
What are the deadlines?
In order to qualify, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.
Do you meet the qualifications?
Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more can receive a partial credit. However, if you earn more than $145,000 you are ineligible.
Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more can receive a partial credit. However, if you earn more than $245,000 you are ineligible.
Instances where a tax credit would NOT be due:
- You buy a home from a direct blood or a close relative, including a spouse, parent, grandparent, child or grandchild.
- You do not use the purchased home as your primary residence.
- You are a non-resident alien.
- You were, or are, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply to a home purchased in 2009)
- You owned a principle residence at any time during the three years prior to the date of the purchase of this new home.
The information herein is believed to be accurate but not warranted. Please consult a tax professional for more complete information on how the program applies to you.