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| The Federal Home Buyer Tax Credit
Basics of the Program
The American Recovery and Reinvestment Act of 2009 includes a provision for qualified first-time U.S. homebuyers to receive a tax credit of up to $8,000. In November 2009, the provision’s deadline was extended and the credit was expanded to give most other homebuyers a tax credit of up to $6,500.
The credit amounts to 10 percent of the purchase price up to the credit limit. So a home purchase of $80,000 or more would be good for the full $8,000 credit for "first-time" buyers; and a home purchase of $65,000 or more would be good for the full $6,500 credit for qualifying "repeat" buyers.
No credit is available for home purchases that exceed $800,000. The credit never has to be repaid, provided that the buyer continues to own and live in the home as a principal residence for a minimum of three years straight.
Under the deadlines revised in November, buyers must have a written, binding contract in place before May 1, 2010 and close before July 1, 2010.
Program Details
• An individual qualifies as a first-time buyer if neither he nor she, nor their spouse, owned a principal residence in the United States in the three years prior to closing.
• An individual qualifies as a repeat buyer if he or she, or their spouse, owned and lived in a principal residence in the United States for five consecutive years within the eight years prior to the closing date.
• Even if a co-borrower (or someone providing help with the down pay-ment) is ineligible for the credit, the otherwise qualified buyer remains eligible – meaning a parent can help a child (nondependent and at least age 18) buy a home – and the child can receive the credit.
• Buyers can receive the full credit even if they don’t owe any taxes for the year in which they file for the credit.
• There are income restrictions, which were revised upward with the November modification. The full credit can be taken by individual filers with Modified Adjusted Gross Incomes up to $125,000 and joint filers up to $225,000. The credit phases out after that and is eliminated at $145,000 for individuals ($245,000 for joint filing). Be aware of the distinctions between Adjusted Gross Income, Modified Adjusted Gross Income and Taxable Income. This IRS Web page has details on calculating Modified Adjusted Gross Income.
How San Diego Home Buyers can Use the Tax Credit
• They can claim the credit only after closing on their home purchase.
• For purchases closed in 2009, they can claim it on their 2009 federal tax return or they can file an amended 2008 return to receive the money sooner.
• For qualifying purchases closed after Dec. 31, 2009, taxpayers can treat the purchase as if it were made on Dec. 31, 2009 for tax filing purposes to receive the credit earlier than via their 2010 return.
Exceptions for Members of the Military and Others
Otherwise qualifying military personnel and certain other federal workers on extended duty outside the United States have an extra year to buy a principal residence. There also are repayment exemptions if the requirement to own and live in the purchased property for three years is not met because of extended-duty orders. Here are more details from NAR. With all of the military presence we have here in San Diego, I am here to help you find your dream home and take advantage of these tax credits!
Using the Federal Tax Credit to help with Down Payment or Closing costs
Some lenders, non-profits and state housing agencies offer bridge loans that enable buyers to borrow against the tax credit to help with a down payment or closing costs. Even FHA-insured mortgages can be linked to such programs. Options for turning the credit into cash vary widely. Costs vary, too. And because the concept is so new, finding such "bridge loans" can be a challenge, and, to date, it appears that relatively few buyers have been able to take advantage of such opportunities. Perhaps because of this, information available on such down-payment programs remains dated, focused only on the $8,000 credit. Here’s basic information about the FHA program. And here’s a site that links to details on state programs, some of which include specific FHA options.
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