Home Buyers Get a Bigger Break

First-time buyers get more time to qualify for a tax credit, and homeowners who trade up can claim a credit, too.

The home-buyer tax credit isn't just for first-timers anymore. Congress opened the door to existing homeowners who want to buy a new home and agreed to raise the income-eligibility limits so that more people could take advantage of the popular tax break. Plus, lawmakers extended the first-time-buyer credit, which was due to expire November 30, through next spring.

To qualify for a tax credit, eligible home buyers have until April 30, 2010, to sign a binding contract, and they must close the deal before July 1. First-time buyers, defined as purchasers who have not owned a home in the previous three years, can claim a tax credit for 10% of the value of the house, up to a maximum of $8,000. And now those who have owned a house for at least five consecutive years out of the past eight and who are in the market for a new one may be eligible for a tax credit of up to $6,500.

Do you qualify? Income-eligibility limits for both credits are higher than the caps that applied to the earlier first-time-buyer credit. For single taxpayers and heads of household, the credit begins to phase out at $125,000 of income and disappears at $145,000. For married couples, the credit starts to phase out at $225,000 and disappears at $245,000.

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The credit applies only to primary residences, not second homes, and the property value may not exceed $800,000. Members of the military serving outside the U.S. for at least 90 days can take advantage of the credit until June 30, 2011.

First-time home buyers who closed on their homes before November 7 are restricted to lower income thresholds of $75,000 (phasing out at $95,000) for individuals and $150,000 (disappearing at $170,000) for married couples. Existing homeowners who closed the deals on their new homes before November 7 are out of luck.

If you close on your home by December 31, 2009, you can file an amended 2008 tax return (Form 1040-X) for an immediate tax refund. If you close the deal between January 1 and April 15, 2010, you can claim the credit on your 2009 return. For later sales, file an amended 2009 return.

Mary Beth Franklin
Former Senior Editor, Kiplinger's Personal Finance