As Congress debates whether to extend the first time homebuyer credit to September 2010; let’s take a look at how the credit has changed over the past two years. Who might qualify and not realize it. Who has to pay it back and who doesn’t.
The first time homebuyer credit became law on July 30, 2008 allowed for those who hadn’t owned a main home in the last 3 years to take advantage of a refundable tax credit, 10% of the purchase price, up to $7,500. There are certain AGI (Adjusted Gross Income) tests that have to be met in order to qualify. The credit in its original form had a maximum amount of $7,500 and has to be paid back two years after receiving the credit. Those homebuyers who claimed the credit in 2008; will start paying the credit back on their 2010 taxes in the amount $500/year for the next fifteen years. This could do one of two things depending on your situation; either decrease your refund or increase the amount of your taxes.
An update to the first time homebuyer credit was signed into law Feb 17, 2009 by President Obama and it both changed and expanded the tax credit. The maximum amount was increased from $7,500 to $8,000 for those Married Filing Jointly and $4000 for those Married Filing Separately. The requirements for this credit are that the house be purchased between January 1, 2009 and December 1, 2009. As with the original bill; there are income requirement. This refundable credit does not have to be paid back provided the people receiving the credit live in the house for 36 months. The credit can be claimed on either the 2008 taxes or 2009 taxes.
November 2009 the first time homebuyer credit was changed and expanded for a 3rd time. The credit remains the same at a maximum of $8000 and it does not have to be paid back (unless, the house is sold or stops being the primary residence within 36 months after purchase). The end date of the credit pushed back until April 30, 2010. The house must be under contract by May 1, 2010 and must close the mortgage by July 1, 2010. The law allows for long-time home owners to purchase a new primary residence and qualify for a reduced amount of credit ($6,500) as well as raised the income limitations for the credit. If you didn’t qualify before due to income limitation or current homeownership; you might qualify now. Check with your tax advisor as we stay up to date on these changes. Members of the Armed Forces and certain federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and still qualify for the credit. An eligible taxpayer must buy or enter into a binding contract to buy a home by April 30, 2011, and settle on the purchase by June 30, 2011.
We may see a 4th set of rules soon; as there is currently debate on extending the credit to September 2010. Keep updated on the changes by following me at Twitter or my Personal Finance Blog. I will continue to provide the information through the Kitsap Sun Reader Blog as it comes available.