The President has signed the Homebuyer Tax Credit legislation, which effectively extends and expands the home buyers tax credit. The legislation does include some modifications to the existing tax credit which will become active December 1st. Some of the details are below.
First-time Buyer – Amount of Credit:
- This will not change from the existing legislation. The amount of credit is still $8,000 ($4,000 if married and filing separately).
First-time Buyer – Definition for Eligibility:
- This will not change from existing legislation. To be eligible, the buyer may not have had an interest in a principle residence for 3 years prior to purchase.
Current Homeowner – Amount of Credit:
- This will change from having no provision to a credit of $6500 ($3250 if married and filing separately).
Effective Date – Current Owner:
- The effective date is the date of enactment, December 1, 2009.
Current Homeowner – Definition for Elligibility:
- The current legislation had no provisions, however, the new legislation stipulates that the home being sold must have been used as a principle residence consecutively for 5 of the previous 8 years.
Termination of Credit:
- The termination of credit will be extended to and end on, April 30th, 2010.
Binding Contract Rule:
- Legislation ending November 30th have no binding contract rule. However, the new legislation taking effect December 1st, stipulates that so long as a written binding contract to purchase is in effect on April 30, 2010, the purchaser will have until July 1, 2010 to close.
Income Limits (Note: Increased income limites are effective as of date of enactment bill):
- The income limit for legislation ending November 30, 2009, is $75,000 if you are single and $150,000 if you are married with an additional $20,000 phase out. New legislation taking effect December 1st, 2009, the income limit will be increased to $125,000 if you are single, and $225,000 if you are married, again with an additional $20,000 phase out.
Limitation on Cost of Purchased Home:
- The limitation for the cost of purchased home is being set at $800,000 for new legislation taking effect December 1st. Legislation ending November 30th had no such limitation.
Purchase by a Dependant:
- Homes purchased by a dependant will no longer be elligible for the upcoming home buyers tax credit legislation. Legislation ending November 30th had no provision for dependants purchasing a home.
- For legislation ending November 30th, 2009, there were no anti-fraud rules in place. The new legislation, taking effect December 1st, stipulates that the purchaser must attach documentation of purchase to their tax return.
What does all this mean? Despite some changes with how the current legislation handles the home buyers tax credit the extention will hopefully help spur the real estate market long enough until summer when people are more apt to purchase a home. The real estate market typically struggles in the winter months until spring and summer, when homes are fresh from a little spring cleaning that the market picks up again. Families who have children often wait untill the spring as they can prepare to move over the summer so their children won’t be out of school. This home buyer legislation should help the struggling real estate market until spring returns.