President Barack Obama has signed legislation extending the $8,000 first-time-homebuyer tax credit beyond its scheduled Nov. 30 expiration and creating a $6,500 credit for longtime homeowners who buy new homes. With thousands of dollars at stake, it's not surprising that potential homebuyers have lots of questions. We have the answers.
How does the extension work?
It's simple: The old credit was scheduled to expire Nov. 30, so folks who hadn't already signed a contract faced a daunting task to get a deal closed by the deadline. Some real-estate agents were writing provisions into contracts making the purchase contingent on the deals closing in time for buyers to get the credit.
Under the new law, the credits are available to qualifying buyers who sign a binding contract by April 30, 2010, and who close by June 30, 2010. The two-month period should offer plenty of time for last-minute buyers to get to the closing table.
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No. There are a few differences that apply to deals closed after Nov. 6, the day Obama signed the bill. First, the similarities:
- You're considered a first-time buyer if you have not owned a home for at least three years before the date you settle on your new home.
- A credit is available only for the home you live in. It's not available for rental properties or vacation homes.
- For first-time buyers, the credit is 10% of the purchase price of the home, up to $8,000. Therefore, if your house costs $80,000 or more, you can qualify for the maximum tax credit.
- The credit does not have to be repaid, as long as you live in your house for at least three years. If you sell or move out before three years, you have to repay the money as extra tax on your tax return for the year you sell or move. (The payback can't exceed the amount of profit you make on the sale, though.)
Now for the key differences:
- Longtime homeowners can get a credit now, too, but it tops out at $6,500.
- You don't get a credit if the house you buy costs more than $800,000. (There was no price cap for deals closed before Nov. 7.)
- The new law increases how much buyers can earn and still claim a credit. For deals closed before Nov. 7, the right to the credit gradually disappeared as adjusted gross income rose between $75,000 and $95,000 on single returns and between $150,000 and $170,000 for married couples filing joint tax returns. (Adjusted gross income is basically your income before you subtract your personal and dependent exemptions and your standard or itemized deductions.)
- Now the phaseout zones are $125,000 to $145,000 for singles and $225,000 to $245,000 for married couples.
When we signed our contract to buy our first home in October, we were kind of bummed because our $190,000 income meant we made too much to qualify for the credit. We won't close until mid-November. Do we get a credit now?
You're in luck. The new, higher income limits apply to deals closed after Nov. 6. Enjoy your windfall.
How does the new $6,500 credit work?
This credit is available to qualifying buyers who sign a binding contract by April 30, 2010, and who close on a new home between Nov. 7, 2009, and June 30, 2010. To qualify, you must have continuously owned and lived in a home for at least five of the eight years leading up to the purchase of a new home.
If you have owned and lived in your current home for at least five years, for example, you can qualify. If you bought the home you're living in now less than five years ago, however, you won't qualify.
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The credit is 10% of the purchase price, up to $6,500. As with the first-time-buyer credit, this one is available only for the purchase of a principal residence, not a vacation home or rental property. And if you sell the place or move out within three years, you have to pay back the credit on your tax return for the year you sell or move. Homes that cost more than $800,000 are ineligible for the credit.
Income-eligibility rules are the same as for the first-time-buyer credit. The right to claim the credit disappears as adjusted gross income rises between $125,000 and $145,000 on a single return and between $225,000 and $245,000 for married couples filing joint returns.
Continued: Learn more about the credit
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