When I first heard that the home buyer tax credit had not only been extended but expanded to move-up home buyers, I was excited. Here in Coastal Sussex, first time home buyers are not our largest buyer group. My Realtor friends up in Newark and Wilmington have had quite a year end selling homes to first time buyers who were getting all the good breaks. But the majority of our buyers in Lewes or Rehoboth and surrounding areas, the repeat home buyer, had been ignored.
Now, for a brief time, the Repeat Home Buyer Tax Credit offers one more reason to think about buying that new home now. The criteria are fairly narrow, but if you qualify the amount of the tax credit could refund most of your closing costs. The Worker, Homeownership, and Business Assistance Act of 2009 established a tax credit of 10% of the home’s purchase price up to a maximum of $6,500 for qualified move-up/repeat home buyers (existing home owners) purchasing a principal residence after November 6, 2009 and on or before April 30, 2010. When it was first introduced, we all assumed the language meant that you had to “move up” to a more expensive home in order to qualify for the tax credit as a repeat buyer but that was later corrected.
So, who does qualify and what are the deadlines?
Bill and I are in the process of purchasing a new home so I eagerly searched for the specific requirements. Unfortunately, we do not qualify for the tax credit since we only lived in our previous primary residence for about 4 years! A move-up home buyer is anyone who has owned and lived in the same home for at least 5 consecutive years out of the previous 8 years prior to the purchase date. For married couples, this applies to both the home buyer and his/her spouse.
Before we get to the additional qualifications, let’s focus on the timing issue. If you are an active buyer looking at homes now, you would have to be moved into your new home prior to April 30, 2010. Realistically that means you should be under contract no later than March 1, 2010. If you have a home to sell, it had better be on the market now with high hopes of getting it sold over the winter. I’m poring over the details and see nothing prohibiting a Contingent Contract on the house you want to purchase, but in order to proceed to settlement in the allowable time frame, you’d have to be able to remove the contingency and settle by April 30, 2010. What if your existing home does not sell but you are in a position to settle and move into your new primary residence anyway? That’s a question for your accountant.
If the home you are buying is new construction, the law does allow for occupancy no later than June 30, 2010, as long as there is a binding sales contract in full force by April 30, 2010. It sounds to me like you have to actually go to settlement no later than April 30, 2010, even if the home is not going to be ready for occupancy until June 30, 2010. Another question for your accountant.
OK, so you have owned your last home for 5 of the previous 8 years and you are actively looking for your next home, what are the other criteria to determine if you are eligible for the $6,500 tax credit?
Income Limits – A single taxpayer can earn up to $125,000; the limit is $225,000 for married taxpayers filing a joint return. The tax credit amount is reduced for buyers with modified adjusted gross income (MAGI) above those limits and goes away at $145,000 (single) and $245,000 (married). I’m not going to get into how MAGI is calculated; if it affects you, you know all about it I’m sure.
What kind of homes qualify? – Any home that will be your primary residence qualifies as long as the purchase price does not exceed $800,000. That includes a manufactured home on leased land selling for $65,000 all the way up to an $800,000 historic home in Lewes.  In both of these cases, the buyer would qualify for the full $6,500 tax credit (10% of the purchase price; maximum $6,500 tax credit). Second homes and vacation homes do not qualify.
“Refundable” tax credit – This means that the home buyer credit can be claimed even if the taxpayer has little or no federal income tax liability to offset. It is possible to get the full $6,500 tax credit even if you owe no federal tax at all. Again – the accountant to be sure.
More Good News – The tax credit you receive does not have to be claimed as income on your next year’s tax return. This is essentially free money! And, you can actually claim the tax credit against the previous years’ income or the current year. So if you make the purchase and go to settlement in 2009, you can choose to claim the credit against 2009 or 2008, whichever is more favorable to you and gets you the largest tax credit. If your purchase occurs in 2010, you can choose to apply the tax credit to either 2010 or 2009.
One group of buyers that could be helped by this tax credit is the recent retiree. Think about it. This person is very likely to have lived in their last primary residence for 5 of the past 8 years. They may also have decided to sell the large family home and downsize to something more manageable for their future. If they’re lucky, they already did sell and are now looking for their retirement home. As recent retirees, their income may now be within the income limits where before they might not have qualified. Add this tax credit to today’s extremely low interest rates and the lowest home prices in a decade and this is a great opportunity to buy a home now.
As with any government sponsored program, the Move-Up/Repeat Home Buyer Tax Credit program takes some thought and might require a few calls to your accountant, but isn’t it worth it for a $6,500 tax credit?