More will benefit from new homebuyer credit
WASHINGTON — Take a close, hard look at the $6,500 federal tax credit for "move up" homebuyers that passed the Senate and House last week. Though it has received second billing to the original $8,000 credit for first-time purchasers — now extended through June 30 — the new credit for current homeowners might help a wider audience.
How does it work? When will it be available?
The new credit is available now. It took effect Nov. 6, the day President Barack Obama signed the legislation. This means that if you fit the key criteria — you have owned and resided in your current home for a consecutive five of the past eight years, and your adjusted household income doesn't exceed $125,000 if you file taxes singly, $225,000 if you file jointly — you can claim the credit as soon as you close on a qualifying house.
That could be next week, next month or next spring. There is no "move up" requirement in the new credit. In fact, the credit might be interesting to homeowners who plan to downsize or people who are relocating because of work changes.
If you fit the criteria and are considering buying another house, you must sign a contract by April 30 and close by the June 30 to qualify for the "move up" expiration date. You may have to speed up your plans, but if the government is willing to give you $6,500 to act a little faster, hey, why not?
Some other key criteria for qualifying for the $6,500 credit you ought to know about:
• The house you intend to purchase cannot cost more than $800,000.
• The replacement house must become your main home. There is no requirement in the legislation that you sell your current home. You could rent it, turn it into a second home, or list it for sale later in 2010 when prices might be higher. If you plan to retain it, make sure you move into the new house on the day you close so there is no question it was your principal residence at that time.
• Like the first-time buyer credit, the $6,500 credit permits a broad range of dwelling types, including newly constructed or existing single-family homes, condominiums, manufactured or mobile homes and boats that function as your principal residence. You cannot claim the credit if you are buying a second home or an investment property.
• The IRS is required by Congress to scrutinize claims for credits — both for the $6,500 and the $8,000 — far more closely than it did earlier in 2009. This is because federal investigators have documented significant instances of fraud — supposed "homebuyers" who were actually minors as young as 4 and "sales" that were fabricated. Investigators also found numerous cases of technical violations, such as purchase transactions among immediate family members, which are prohibited.
The revised rules require taxpayers to submit copies of their settlement statements (HUD-1 forms), along with their requests for credits using IRS Form 5405. Congress' new rules also prohibit individuals under age 18 or who are counted as dependents on another taxpayer's filings from claiming the credit.
• Home buyers in 2009 — those who go to closing after Nov. 6 but no later than Dec. 31 — can claim the $6,500 credit on their 2009 federal tax returns, or amend their 2008 returns. Similarly, eligible purchasers in 2010 will be able to file for the credit on their 2009 returns or 2010 returns. Talk to your tax adviser regarding timing decisions, which may be affected by your household income applicable to a given year.
• If you aren't sure if you can make the deadlines established for the new credit — a binding contract by next April 30 and a settlement by June 30 — do not assume that Congress will provide another extension. All the political and budgetary signs point the other way, and some of the primary authors of the credit insist that this is it, no more extensions next year. Take them at their word.
Ken Harney can be reached at [email protected]