A Year-End Gift for Home Buyers
More taxpayers, including higher-income people and existing homeowners in the market for a new house, now qualify for the popular home-buyer tax credit. And get this: If you buy a home before the end of the year -- or if you have already closed on your new digs -- you don’t have to wait until you file your tax return to collect your cash.
If you finalize your home purchase by year-end, you can file an amended 2008 tax return (that’s right, we said 2008 return) and collect your refund in a matter of weeks. And won’t that come in handy when the holiday bills start rolling in?
If your home-sale negotiations drag into the new year, don’t fret. You can qualify for a credit if you sign a binding contract by April 30, 2010, and close the deal by June 30. (Members of the military serving outside the U.S. for at least 90 days can take advantage of the credit until June 30, 2011.) There are two home-buyer credits now. One is for first-time buyers, defined as anyone who had not owned a home during the prior three years. If you qualify, you get a tax credit for 10% of the value of the house up to a maximum credit of $8,000.
The second credit is for longtime residents, defined as those who have owned a house for at least five continuous years out of the eight years leading up to the purchase of a new home. This credit, available for purchases after November 6, 2009, is based on 10% of the purchase price, up to a maximum credit of $6,500.
“This provision is aimed not only at individuals who are moving up to a more expensive home, but also to empty nesters who are downsizing,” says Mark Luscombe, principal federal tax analyst with CCH, a provider of tax information and software. “It also may ease some of the sting of selling a home that has declined in value,” Luscombe says.
Income eligibility limits for both credits are significantly higher than the caps that applied to the first-time buyer credit prior to November 7. For single taxpayers and heads of household, the credit begins to phase out at $125,000 and disappears at $145,000. For married couples, the credit starts to phase out at $225,000 and disappears at $245,000. The credit applies only to primary residences, not second homes or rental properties, and the property’s value can’t exceed $800,000.
First-time home buyers who closed their contracts before November 7 are restricted to the lower income thresholds of $75,000 (phasing out at $95,000) for individuals and $150,000 (disappearing at $170,000) for married couples. Buyers who might have qualified for the $6,500 credit but who closed their deals before the new law went into effect are out of luck. At the same time, those who signed contracts to buy a home with the assumption that they would not qualify for a credit -- either because their income was too high or because they weren’t first-timers -- might be in for a windfall.