Like It Or Not, The Home Buyer Tax Credit Becomes Law

3240697880_9ff3343c68Well, I’m admittedly many hours late on this, but as of this post it’s being reported that the President has signed H.R. 3548, the bill that deals with, among other things, an extension to the first-time buyer tax credit that was put in place earlier this year.

I’m asuming that most people don’t care about the gobbly-goop of the bill, nor do they care about the particulars of the Special Amendment that deals directly with the tax credit extension.  If you do, you can read it in its’ entirety here, and find the Special Amendment here.  For everyone else, here are the highlights:

  • the credit must be used on principal residences only
  • a credit of up to 10%, or $8000,  of the homes’ purchase price is eligible to first-time home buyers
  • the original credit had an income limit of $75000 for a single person, and $150000 for a married couple – that level has been increased to $125000 and $225000, respectively
  • the length of time to claim the credit has been extended to May 1 2010 (contracts must be signed before that date), and you must close on that contract before July 1 2010
  • additionally, what’s being called a “move-up” component has been added, as well … for homeowners who have lived in the home they are selling for five consecutive years (of at least eight years total), they’re eligible for a $6500 move-up credit

That’s pretty much it, from everything I’m reading.  To recap, all you need to do is (1) go under contract before May 1 2010, (2) close before July 1 2010, and (3) submit to the IRS your HUD-1 statement from closing along with this form.  I’ve said that I’m in favor of the credit, but I have to admit that I’m really struggling with this latest extension.  Namely, I’d like to know where we’re going to get the money for this … seems like the tax payers are the ones who are footing the bill for their own credit.  I know that’s an unpopular position, particularly when I’ve had the pleasure of working with so many people this year who were able to buy their first home because of the tax credit, but at what point does all the spending stop?

Nevertheless, it’s signed sealed and delivered at this point.  The ink is dry, the photo ops are done.

For more information and FAQs about the Skillern Firm extension, NAR has put together a list of things to consider:

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 year 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.

Photo from TMAB2003. Soure

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