Making Sense of the new Tax Credit Extension

Homebuyer Tax Credit Extension

Okay, I think I get it now and I’m ready to give you the scoop on the new tax credit extension.  I know this news has been circulating around for awhile now, with many industry professionals trying to be the first to tell you the new rules, but up until now – I still had questions that I couldn’t find answers to and much of the information I was getting didn’t jive with other information I was getting.  So, this may not be the first you’ve heard about this stuff, but I believe it is accurate. 

No big changes to the First Time Homebuyer tax credit, except now you can claim it if you’re in a higher income bracket.  (Questions on this?  Easy to find income limits on-line.)   Extension applies to homes under contract by April 30th, 2010 and the deal closed by June 30th, 2010.

For existing homeowners, you can get up to $6,500 if you buy a new primary residence (same contract and close dates).  You don’t HAVE to sell the current primary residence, but you do need to live in the new primary residence.  (And don’t think you can cheat on this – they’ll be checking!  With the many fraudulent claims the IRS received for the current programs – which was claimed by toddlers and pets and people who didn’t even buy a home – don’t expect the IRS to let you skirt by on this requirement.  There are MANY places they can find out, the most obvious ones being the mailing address you put on your tax filings in the next few years and your documentation of rental home income – Oh, and there’s a census coming up next year too!)

In order to qualify, you MUST have owned and lived in your old or soon to be old home for at least 5 years and sold it in the past 3 years.  This is the one really confusing part of the bill – but I think I have it now, and I hope I can explain it to you.

Example A:  Owned a home for 5 years and sold it in 2008 and have rented since.  You qualify for the tax credit because you satisfy the 5 year rule and sold in the past 3 years and didn’t own another primary residence since then.

Example B:  Owned a home for 5 years, sold it in 2008 and bought another one right away.  Now you want to sell this home and buy another one.  You do NOT qualify for the tax credit because you’ve owned your current home less than 5 years.  The tax credit is based on the most recent home you’ve owned.

Example C:  Owned current home for 5 years, want to buy a new home and turn the old one into a rental home.  You qualify for the tax credit.  But if you do not live in the new home as your primary residence for at least 3 years, you will be obligated to pay back the tax credit.  And if you are found to be claiming the tax credit fraudulently, you’ll also have severe tax penalties to deal with too.

Example D:  Owned a home for 5 years and sold it in June 2006 and have rented since.  You don’t qualify for the existing homeowner tax credit because you qualify for the $8,000 first time homebuyer tax credit.  Anyone who hasn’t had homeownership interest in a home in the past 3 years qualifies as a first time homebuyer.

So, that’s the basics.  (There are other rules about joint ownership, community property rules, parents co-signing for kids, etc – too lengthy to get into here).  I hope that helps you make sense of the new law.

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