For boomers and retirees, the big news is this: The homebuyer credit extension President Barack Obama signed into law Nov. 6 inserts them into the credit bonanza.
The original $8,000 credit, which was set to expire Nov. 30, was available only to first-time homebuyers and those who hadn't owned a home during the three years prior to closing on a new house.
But the new law adds a $6,500 credit for "longtime residents of the same home," making it a boon for retirees and those nearing retirement who want to trade down to smaller homes or perhaps move to a sunnier locale.
Both the $8,000 and $6,500 versions of the credit are refundable -- meaning if you don't owe that much in taxes, you get a check back from Uncle Sam.
"It's a windfall for those already set on downsizing," says Timothy W. Wyman, a financial planner with the Center for Financial Planning in Southfield, Mich.
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Even if you're not set on downsizing, it's something to consider if you're nearing retirement. Recent research suggests that the happiest retirees are those who move to new homes while remaining in their longtime communities.
The new law still gives first-time homebuyers a more generous credit: 10% of the purchase price of the new home, up to $8,000. But taxpayers who have lived in their homes for five out of the eight years prior to closing on a new one can claim 10% of the purchase price on a new home, up to $6,500.
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Congress put some limits on this -- under the new law, homes that sell for more than $800,000 won't qualify. (Previously, they did.) But outside of a few of the priciest markets, that shouldn't exclude too many properties. The national median price of existing homes of all housing types was $174,900 in September, which is 8.5% lower than September 2008, according to the National Association of Realtors. Of the 4 million properties for sale on Realtor.com, only 5% are listed at $800,000 or more.
As with the earlier version of the credit, there are income limits. But they are much higher than under the old law. A single buyer with modified adjusted gross income of up to $125,000 can qualify for the full credit. That's up from $75,000 under the old law. For couples filing jointly, the full credit is available for modified adjusted gross income of up to $225,000, compared with $150,000 under the old law. The credit then phases out over the next $20,000 of income for either singles or couples.
The new, higher income limits also make it more likely that potential buyers -- and pre-retirees themselves -- will qualify to claim a credit.
Continued: A way around the trap
