home buyer tax credit

Congress has approved a bill that will not only extend the First Time Home Buyer Tax Credit but will also expand the credit to allow current home owners to receive a tax credit if they purchase a home. The housing market has shown signs of improving over the past several months in large part as a result of the tax credit for first time buyers. Over the past several months, first time home buyers have accounted for up to half of all sales.

First Time Home Buyers

There is no change for first time home buyers. They will receive a credit of 10% of the contract sales price up to a maximum of $8,000. The sales contract must be executed on or before April 30, 2010 and the sale must close on or before June 30, 2010. Both of these dates must be met – so, a sale that closes by June 30, 2010 with a contract date of May 15, 2010 is not eligible for this credit. Also, for the tax credit, a first time home buyers is someone who has not had ownership interest in a primary residence for the past 3 years.

Existing Homeowners

The tax credit for existing homeowners works the same as for first time home buyers but it is limited to $6,500. An existing homeowner must have lived in their property for at least 5 consecutive years out of the past 8 years prior to the purchase of the new home. Also, only sales after November 6, 2009 are eligible for the tax credit for existing homeowners.

Income Limits

Income limits are the same for both first time home buyers and move up buyers. Buyers with a modified adjusted gross income (MAGI) of $125,000 ($225,000 for married couples) or less will get the full tax credit. The credit is phased out for MAGI between $125,000 and $145,000 ($225,000 and $245,000 for married couples) and is eliminated above $145,000 ($245,000 for married couples). To determine your MAGI, check IRS Form 5405.

Military/Service Rules

For qualified service members who serve a period of official extended duty (more than 50 miles from home for a period of 90 days or more) will have a 1 year extension – contract sale of April 30, 2011 and closing date of June 30, 2011. Also, qualified service members who sell or move from a tax credit home within three years of the initial purchase due to official extended duty are exempt from the recapture rule. Qualified service members include a member of the uniformed services of the US Military, an employee of the intelligence community, or a member of the Foreign Service of the US.