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The “New” Homebuyers Tax Credit Explained

tax-credit-pic1If you were one of the many Americans, holding your breath in hopes that the New Homebuyer tax credit would be extended, your wait it over. Many had predicted that the highly successful tax credit would be extended, but last week congress made it official and changed the deadline to April 30, 2010. This means that you must have purchased a home by April 30, 2010 and must close on that purchase by June 30, 2010.

Besides the extension their are other major changes that should not be overlooked.

Expansion of the tax credit – The homebuyer credit is no longer limited to first-time homebuyers. Homebuyers who have owned a home for 5 of the last 8 years will qualify for a tax credit of as much $6,500. The 5 years of ownership must be consecutive years and the home must be the buyer’s principal residence. The credit is available for purchases made after Nov. 6, 2009 and before May 1, 2010.

Higher Income Limits – Prior to these changes the tax credit phase-out range was a Modified Adjusted Gross Income (MAGI) of $75,000 – $95,000 (for single taxpayers) and $150,000 – $170,000 (for married taxpayers). Under the new legislation, the MAGI ranges change to $125,000 – $145,000 (for single taxpayers) and $225,000 – $245,000 (for married taxpayers).

Home purchased for more than $800,000 after Nov. 6, 2009 do not qualify for either the $8,000 or the $6,500 tax credits. Also, homes purchased from in-laws after Nov. 6, 2009 do not qualify for either credit.

Dependents of taxpayers under the age of 18 do not qualify for the tax credits.

Will The $8000 Tax Credit Be Extended?

By now most Americans are aware of the 8,000 dollar tax credit offered by the federal government for first time home buyers.  This is a dollar for dollar credit that will be payed out on your tax return the following year.  So if you are a first time home buyer and close on your house before Dec. 1st, 2009 Uncle Sam will write you a check for 8,000 dollars.

As the deadline grows near we are sure to see a spike in the amount of first time home buyers entering the market.  The question many will be asking themselves is “will the tax credit be extended?”  The answer like many things involving the federal government is… maybe.

If you are a first time buyer thinking of jumping into the market there is much to consider.  The safe move is to purchase now.  If you are in the market and there is nothing keeping you from buying at this very moment, this may be the best option.  Buying now will guarantee your 8,000 credit next year, while eliminating the anxiety you may feel while waiting to see if congress will act.

While the safe bet is to buy now, not everyone is in the perfect position to buy at this moment.  There are many reasons one might wish to push their luck and hope congress extends the tax credit.  If you are in a lease that is not set to expire, or if you are having a hard time qualifying for a loan based on the length of time you have been at a job, or  residence, waiting may be in your best interest.

If you find yourself in the latter group hoping the tax credit is extended there is some good news.  Many experts feel there is a better than average chance the credits will be extended.  Why will congress extend this tax credit?  The same reason that congress does almost anything these days, the Economy.

The NAR(National Association of Realtors) has reported that the average home sale generates 63,000 dollars in ripple effect spending, or money spent buying a home not including the sale of the home itself.  Ripple effect spending includes moving fees, realtor fees, title fees, furniture, lawn chairs, etc.  They also estimate that up to 350,000 homes have been sold because of the tax credit.  that’s a lot of zero’s to be adding to the slumping economy.

If you plan on waiting it out and rolling the dice, the odds may very well be in your favor.  However do not expect your wait to be worry free.  If congress does pass an extension to the tax credit, they will more than likely wait till the last minute to get as many people as possible to act early.  So if your in a position to act now your blood pressure may well thank you, and if your plan is to wait it out may the force be with you!

Latest on the stimulus bill and house tax credit

The US House is voting on the final passage of the bill today and then the Senate will follow shortly after. It is expected the “Stimulus” bill will have little problem getting through either chamber.

One new detail on the housing portion of the bill that I had not previously reported about has come to light. The Senate had wanted the tax credit for first time home buyers to be for on purchases of homes for one year, but the final version is only on purchases of homes that close by August 31, 2009.