Congress has extended the popular tax credit for first-time homebuyers and created a new tax break for homeowners looking to trade up.
When President Obama signed the Worker, Homeownership, and Business Assistance Act of 2009 into law last week there was anaudible sigh of relief from the real estate industry.
The first-time buyers’ tax credit that was set to expire Nov. 30 has been credited with causing the modest bump in home sales we’ve seen the past few months.
Under the new law anyone who hasn’t owned a home in the past three years can claim a credit worth 10% of a home’s purchase price, up to $8,000.
Buyers can qualify by signing a sales contract between Nov. 7, 2009 and April 30, 2010, and closing on the purchase no later than July 1, 2010.
The act allows buyers with higher incomes to take advantage of that credit, too.
Under the original law, individual buyers could earn no more than $75,000, or $150,000 for couples filing jointly, to qualify for the full $8,000 credit.
Now, buyers making up to $125,000, or $250,000 for couples, can do so.
The new act also includes a tax credit of up to $6,500 for individuals and families who have lived in their homes for at least five years and want to move.
The deadlines are the same as for the first-time buyers’ tax credit — contract by April 30, closing by July 1.
Both credits require the home to be a principal residence and to cost no more than $800,000.
These tax breaks are particularly valuable because they’re credits, not deductions.
Deductions reduce your taxable income and lower the amount you owe in taxes by about 25 cents to 33 cents per dollar.
Tax credits are subtracted from the amount you owe the government. That means every dollar worth of tax credits lowers your tax bill by a full dollar.
If the credit is more than the tax you owe, you’ll be paid the difference.
Although buyers were able to file an amended 2008 tax return to claim the first-time homebuyers’ credit before the deadline was extended, a spokesman for the Internal Revenue Service told us that may change once details of the new bill’s implementation are worked out.
The IRS is also currently determining whether or not homeowners will be able to file an amended return to claim the new credit for existing homeowners.
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