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Wednesday, October 6, 2010

Congress Extends Homebuyer Credit, For Some


The Extension

In 2008, a refundable tax credit equal to 10% of the purchase price of a principal residence was made available to qualified first-time homebuyers. In 2009, Congress expanded the credit to include certain "long-time" homeowners and extended it to purchases made before May 1, 2010 - or July 1 if a binding contract was in place before May 1. (For certain service members and intelligence employees, the credit was extended for an additional year.)

Congress has now extended the July 1 deadline to Oct. 1, 2010.

It's important to note that the May 1 deadline was not extended - for a taxpayer to benefit from the credit, a binding contract still must have been in place before that date. The extension simply gives taxpayers with such a contract in place more time to complete the closing.

Determining Eligibility

Even if your purchase meets the May 1 and Oct. 1 deadlines, whether you're eligible for the credit and the amount of credit available to you will depend on a variety of factors. For "first-time" homebuyers, the maximum credit is $8,000 ($4,000 for married filing separately). For purposes of the credit, a first-time homebuyer is someone who has had no ownership interest in a principal residence in the United States during the prior three-year period.

For "long-time" homeowners purchasing a subsequent home, the maximum credit is $6,500 ($3,250 for married filing separately). To qualify, the homeowner must have maintained the same principal residence for any five-consecutive-year period during the eight-year period ending on the purchase date of a subsequent principal residence.

For both first-time homebuyers and long-time homeowners, the credit starts to phase out for joint filers with modified adjusted gross incomes (MAGIs) exceeding $225,000 ($125,000 for single filers). It's completely eliminated for joint filers with MAGIs exceeding $245,000 ($145,000 for single filers).

Additionally, no credit is allowed if:

  • The home's purchase price exceeds $800,000 (regardless of regional market factors),
  • The homebuyer (or his or her spouse) is related to the seller,
  • The homebuyer is under age 18 on the date of purchase (unless his or her spouse meets the age requirement), or
  • The homebuyer is the dependent of another taxpayer.

There are other limitations as well, so it's important to consult your tax advisor to determine whether you're eligible for the credit.

Act Soon

It appears likely that the homebuyer credit deadline won't be extended again. So if you had a binding contract in place for a home purchase by May 1 and are otherwise eligible for the credit, you'll need to act soon to ensure you'll benefit. Please contact us to learn more about how to take advantage of this break and other strategies to consider in your 2010 tax planning.

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