New First-Time Homebuyer’s Tax Credit – How It Works
The first-time homebuyer’s tax credit was recently extended, but most people don’t realize it was actually changed dramatically. So, how does it work? I’m glad you asked.
It was the summer of our discontent in 2009. The real estate bubble had busted so long ago that the only remnants of it were the tattered empty homes and foreclosures lying around in many neighborhoods. It was a shock to the system like we haven’t seen since the Great Depression.
To try to get the real estate market moving again, the Obama Administration came up with the First-Time Homebuyers Tax Credit, which was designed to help people with their down payment. The program was set to expire at the end of November. Facing a real estate market that is still tepid at best, the media reported that an extension of the credit was going to occur. They were wrong. Will the program was extended, the nature of the program changed dramatically.
The first thing to understand is the First-Time Homebuyer program is that it now applies to everyone. First-time homebuyers can claim a credit equal to 10 percent of the purchase price with a top limit of $8,000. Current homeowners, however, can now get in on the action. They can claim 10 percent of the value of the home they buy with a top limit of $6,500. In short, the program should now be called the “Anyone Buying A Home Tax Credit”! Given the state of the housing market, this isn’t really a bad thing.
There are, of course, restrictions on who can claim the credit. A first-time buyer cannot have owned a home during the prior three years. The cost of the home cannot exceed $800,000. Income is limited at $135,000 a year for individuals and $225,000 for couples…so much for family values! As to existing homeowners, they can only claim the credit if they’ve lived in the home they are selling five of the previous eight years and the home is their primary residence, to wit, no vacation homes are included.
The new First-Time Homebuyer’s Tax Credit comes with an expiration date as well. You will need to have closed on your purchase by June 2010 to claim it. This means you need to buy a month or two before this date to allow for escrow and such. Now get out there and buy!