Obama Signs Bill to Extend Homebuyer Tax Credit

Today President Obama signed a bill into law that extends the $8,000 tax credit to first-time home buyers until April 30, 2010, and includes a tax credit for home buyers who "move up" or "trade-in" their home.

The tax credit has greatly helped to stabilize the housing market, and could make an even larger impact by including more home buyers.

Under the new bill, home buyers who are have lived in their home for at least five concurrent years over the past eight years, and purchase a new home, are eligible for a $6,500 tax credit. The new house does not have to cost more than the orginial home. Also, the credit is available for home buyers who once owned a home (and lived there for at least five concurrent years over the past eight years), but have since sold it and have been renting.

Another expansion in the new bill is that buyers with higher incomes can qualify for either credit. The earnings cap has been amended to $125,000 for an individual and $225,000 for a couple. To learn more about the tax credit extenstion and expansion, read the following information form the National Association of Realtors.

Q.  Existing homeowner credit: Must the new house cost more than the old house?

A.  No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Q.  I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?

A.  Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (when the bill is signed). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Q.  I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?

A.  Yes. The new income limitations go into effect as soon as the President has signed the bill. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

Q.  I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000.  Will I be able to use any of the $6500 tax credit?

A.  No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Q. I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?

A.  Yes.  Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is "consecutive." As long as he lived in that house for 5 years straight, what he did since 3 years doesn’t impact eligibility.

Q.  I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?

A.  You do not have to close before December 1. Once the legislation has been signed, it will be as if the November 30 deadline had never existed. Therefore, so long as the contract settles before April 30 (or July 1, worst case), the purchaser will be eligible for the credit.