Homebuyer Tax Credit Extended and Expanded

Congress passed legislation expanding and extending the homebuyer tax credit. The President is expected to sign it November 6, 2009. Here’s an update on how the credit works and how you can take advantage of it if you haven’t already bought a home.

Homebuyer Tax Credit Extension
The original First-Time Buyer Tax Credit was set to expire November 30, 2009, which meant the sale had to close by that date. The credit has now been extended to purchases under contract by April 30, 2010 and closing by June 30, 2010.

Active members of the military who served at least 90 days outside the US have until June 30, 2011 to take advantage of the credit.

Homebuyer Tax Credit Expansion
Congress also expanded the tax credit in two important ways.

Higher Income Caps
Previously the credit started to phase out at $75,000 for singles and $150,000 for married couples. The new caps are $125,000 for singles and $225,000 for married couples. Don’t ask me why the joint cap isn’t double the single cap, that’s just Congress not understanding basic math again. The new cap applies for sales that close after November 6, 2009, so if you bought before then, the original cap still applies.

Additional Credit for Move-Up Buyers
The credit is still $8,000 for first-time buyers, or buyers who haven’t owned a home in the last three years. It now also offers $6,500 for move-up buyers who have lived in their home at least five consecutive years out of the last eight and are buying a primary residence worth less than $800,000. If you’ve been thinking about selling your current home and upgrading to a larger one (or I suppose downgrading, it doesn’t say your new home has to be worth more than the old one), this is a great opportunity to score a little bonus on the deal.

How to Claim the Credit
Contrary to what some scammers are doing, you have to actually close escrow on the house before you submit your claim for the credit. There’s no credit for thinking about buying a house, although some states and the FHA do offer programs that allow you to borrow the credit for your down payment and then repay it as soon as you get your refund.

You can file the credit on the current year’s tax return, or wait until next year’s return to file. If you need the money now and are below the cap, you can file an amended return for your 2008 taxes. The credit will arrive in 12 weeks or so, and include interest since April 15, 2009.

The other option is to wait and claim the credit on your 2009 taxes (if you bought in 2009). If you buy in 2010, and close before April 15, you can claim the credit on your 2009 taxes, or file an amended 2009 return after closing. Otherwise you can wait until your 2011 return to file the credit. Once again, check and see where you expect your income to be if you’re riding close to the cap. If you’re at the edge, try to delay bonuses to get yourself the maximum credit.

If you’ve been thinking about selling your home, call a real estate agent now. If you’re looking for a home, don’t stop now. And if you’re on the fence, take a hard look at your finances to figure out whether now is the right time for you to buy. If you can’t afford the mortgage, then don’t buy just because of the credit. An unaffordable home will cost you a lot more than the tax credit will save you.

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