On Friday, November 6^th 2009 President Obama signed off on a bill that approved an extension of the first time home buyer tax credit. Along with allowing first time buyers their $8,000 incentive, congress also expanded the credit to include repeat buyers, allowing them a $6,500 credit with the purchase of a new home. While many buyers are excited for their chance to utilize the tax credit few people actually understand the basics of it.

Some common factors between both tax credits

There are a few common factors between both the first-time buyer credit and the repeat buyer credit; the first being the deadline. Anyone who wishes to use this tax credit must purchase their home or be under a binding sales contract by April 30, 2010. This means that a buyer needs to have a purchase agreement signed by both parties (the buyer and the seller) dated no later than the 30^th of April. However, while a buyer is still eligible for the tax credit if they have a signed purchase agreement by April 30^th they must close on the property before June 30, 2010.  Another common link between the two credits is the income restrictions. Previously anyone who wanted to use the credit could have a maximum income of $75,000 for single tax payers and $150,000 for married couples that filed jointly. With the new tax credit the income restrictions have been increased. Now any single tax payers may have a maximum income of $125,000 and married couples that file jointly may have a maximum income of $225,000. There is also $20,000 phaseout. This basically means that anyone who makes up to $20,000 above the income restriction will still be able to claim a portion of the tax credit. The two tax credits are also claimed on the same form.  Both of these tax credits are filed on the buyer’s federal income tax return using the IRS Form 5405. Buyers also need to provide a copy of their HUD-1 settlement form to prove that they purchased a home.

The First-time Home Buyer Credit

In a way this credit is pretty much the same as the 2009 first time home buyer credit with just a few modifications. A first time home buyer is still defined as anyone who has not owned a principal residence in the past three years.  The amount of the credit is ten percent of the price of the home up to $8000. The only real differences between this tax credit and its predecessor is that the deadline has been extended, the requirement of a copy of the HUD-1 settlement form, and the increased income restrictions. Like the first tax credit of this nature a buyer can choose to treat the purchase of their home this year as a purchase from the previous year to receive the tax credit earlier than this year’s income tax return.

The Move-Up/Repeat Buyer Tax Credit

This tax credit is aimed to stimulate the rest of the market, particularly the move-up buyer. A home-owner who owns and has lived in their home for a consecutive period of five out of the last eight years is qualified as a move-up/repeat buyer. In many ways this credit is the same as the $8000 credit for first-time buyers. Besides the amount and the type of buyer the regulations are the same. These types of purchases can be treated like one from the previous year to receive the tax credit sooner as well.

A few other important notes about Home Buyer Tax Credits

Here are just a few more pointers that every home buyer should be aware of when considering using one of these tax credits.

• Many different types of homes apply to this credit. Buyer’s can purchase single family detached homes, attached homes like townhouses, mobile homes, and houseboats. As long as it is the principal residence it should qualify. One guideline to figuring out if it qualifies is matching it to the capital gain tax exclusion for principal residences.
• Homes purchased from family members or spouse’s family members do NOT qualify for the tax credit.
• New construction homes DO qualify for the tax credit.
• Monetization of the credit is allowed by HUD. This means that when using FHA-insured mortgages buyers can use their tax credit towards their down-payment or closing costs. Speak with a lender for more details.
• The tax credit is not only for U.S. citizens. Anyone who is NOT a nonresident alien by IRS specifications can use the tax credit as long as they meet all other qualifications for the credit.

For more information on the home buyer tax credits visit http://www.federalhousingtaxcredit.com/ or talk to a qualified tax advisor. It is important to always remember to consult with a tax advisor before attempting to use tax credits. This helps ensure qualification and a better understanding of tax law.

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Consumers around the country are already well aware of the American Recovery and Reinvestment Act of 2009, otherwise known as the first time home buyer tax credit, and are taking full advantage of it. Housing sales in July spiked 9.6% from June as first time buyers raced to make the most of the tax credit before it expires December 1, 2009. According to the National Association of Realtors, first time home buyers accounted for 40% of home purchases this year, which is about 5 points higher than average. While this government created incentive is a fantastic deal for first time homebuyers, many businesses are calling for extensions and improvements as the expiration date draws nearer. In fact the National Association of Home Builders has called upon congress to extend the credit for another year claiming it would spur approximately 80,000 home starts therefore creating close to 350,000 jobs. The main concern is that once the tax credit ends housing sales will plummet without the added tax perks. There is, however, one major factor that has been overlooked in the American Recovery and Reinvestment Act of 2009; the move-up buyer. As members of congress start listening to the concerns of real estate professionals, home builders and other related businesses, they are taking into account the true potential for tax incentives and what they would mean for businesses as well as consumers.

There are many members of congress who have presented various acts to Washington in hopes of extending the growth the real estate market is currently experiencing. The majority of these bills expand to include all homebuyers and some even include options for homeowners looking to refinance. Representative Kenny Merchant of Texas would like to keep the $8000 credit in place until June 2010 while offering a $3000 credit to those who take advantage of the market to refinance their current homes. Representative Eddie Bernice Johnson also presented a bill to congress in May of 2009 to extend the current tax credit throughout 2010. Two acts presented to congress in June, however, appear to have a sizeable amount of buzz following them. One is the Home Ownership Moves the Economy (HOME) Act of 2009. Sponsored by Representative Howard Coble of North Carolina, this bill expands the current tax credit in a variety of ways. Coble plans to extend the expiration to January 1, 2011 and remove the first time home buyer restriction so anyone purchasing a home claimed as a primary residence can receive the credit. He would also like to remove the current income restrictions placed on those planning to use the tax credit, as well as retaining the act’s status as a credit, unlike the 2007 buyer’s credit that had to be repaid. The other buzz-worthy act in Washington right now is the Home Buyer Tax Credit Act of 2009. This bill is sponsored by Senator John Isakson of Georgia. Isakson proposes the credit be worth 10% of the home’s purchase price up to $15,000, but only if the home is claimed as a principal residence. Like the HOME Act it terminates all income restrictions. To follow the progress of these bills visit http://www.opencongress.org/bill . Look up the bills by searching for them using their numbers (listed in order of appearance H.R. 2619, H.R. 2606, H.R. 2801, and S. 1230).

What does this mean for the potential home buyer?

There is no such thing as a sure thing. All of these acts have merely been introduced to congress and have not taken the steps necessary to pass to law yet. Potential first time home buyers hoping to receive a tax credit should play it safe by taking advantage of the resources currently available to them rather than gambling on a tax credit that has come nowhere near becoming law. On the other hand those who are interested in home ownership but not ready to make the leap for reasons such as trouble financing or uncertainty should not rush into buying a home for the sole reason of utilizing a tax credit. Due to the fact that there is a chance for a tax credit in 2010 it is better to make decisions based on important factors such as location, wants, needs, size, quality and affordability to ensure the house is everything it should be and then hope for the chance to use a tax credit. Other proposed plans for all buyers rather than just first time buyers should be a ray of hope for everyone else looking to take advantage of the current market. If any one of these acts passes into law the number of move-up buyers should increase as well as the chance to sell larger, more expensive homes that typically do not appeal to first time home buyers. Overall the current and proposed tax incentives provide amazing deals for those ready to purchase or build a home as well as great marketing for individuals with homes currently on the market. To find out more about the first time home buyer tax credit visit http://www.federalhousingtaxcredit.com/2009/index.html

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