by Sarah Andrewson, REALTOR ®, Oevering Real Estate Group

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.