Last week, Congress and the President approved new legislation that extends the first-time home buyer tax credit and expands eligibility to existing homeowners. The legislation is known as the Worker, Homeownership and Business Assistance Act of 2009. The IRS has more details on the tax credit here.
If you plan on buying a new home between now and April 2010, you will definitely want to take advantage of the credit if you qualify. First-time home buyers can save up to $8,000 and existing homeowners may also qualify for a $6,500 credit to buy a new home.
How much is the tax credit?
The tax credit is 10% of the purchase price of the home, up to the following maximum limits:
- First time home buyers = $8,000
- Existing homeowners = $6,500
Who is eligible?
To be eligible, you must be buying the home to be your primary residence. You also have to live in the home for at least three years, otherwise you will be required to pay the credit back on future tax returns. The tax credit is limited to homes with a purchase price of $800,000 or less.
- Eligible Buyers
- First-time home buyers who have not owned a primary residence at any time during the three years prior to the date of purchase.
- Existing homeowners who have lived in the same primary residence for any 5 consecutive years during the prior 8 years.
The new law increases income limits to qualify for these tax credits.
- Credit phases out for Individual Taxpayers with modified adjusted gross income between $125,000 and $145,000
- Credit phases out for Joint Taxpayers with modified adjusted gross income between $225,000 and $245,000
To take advantage of the tax credit, you must enter into a binding contract for purchase of your primary residence on or before April 30, 2010 and close the purchase by June 30, 2010. For purchases in 2010, taxpayers have the option to claim the credit on either their 2009 or 2010 tax return.
In order to meet these deadlines, it is important to allow yourself enough time to locate and negotiate the purchase of the home. Our typical home buyer takes between 1-2 months of home shopping to locate a home. Allowing time for you to shop and negotiate a purchase agreement, we recommend beginning your home search at some point in early February. You want to allow plenty of time to find the right home and also allow time in case there is competition for homes in your price range.