The First Time Homebuyer Credit has been extended once again. This time, it has been extended to more than just first time homebuyers. You may be able to take advantage of this credit now even if you already own a home.
Under the Worker, Homeownership and Business Assistance Act of 2009, taxpayers buying their first home are now eligible for the $8,000 credit through April 30, 2010. Taxpayers are also eligible under this bill for a credit of $6,500 if they have owned their own home for five years or more. This is a refundable credit, meaning that even if your taxes are reduced to zero, you will be refunded the remainder of the credit.
The new law raises the income limits for people who purchase homes after Nov. 6. The full credit will be available to taxpayers with modified adjusted gross incomes (MAGI) up to $125,000, or $225,000 for joint filers. Those with MAGI between $125,000 and $145,000, or $225,000 and $245,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
For homes purchased prior to Nov. 7, 2009, existing MAGI limits remain in place. The full credit is available to taxpayers with MAGI up to $75,000, or $150,000 for joint filers. Those with MAGI between $75,000 and $95,000, or $150,000 and $170,000 for joint filers, are eligible for a reduced credit. Those with higher incomes do not qualify.
With the original credit, the IRS ran into several problems where children were buying investment houses for their parents and getting the payout. With the extension of this credit, the IRS is finally putting in some basic protections against some of the abuses we have seen. Now you must be at least 18 years old and cannot be claimed as someone’s dependent to take the credit. You also will need to provide extra documentation, including the HUD statement and proof of residency in order to claim the credit. Proof of residency could be a copy of your utility bill or drivers license with your new address on them.
If you bought your first home under the 2008 rules and received the $7,500 credit, don’t forget to plan for the additional $500 in taxes starting in 2010 to pay that back over 15 years. Unlike the current First Time Homebuyer Credit, the credit for houses purchased in 2008 was more like an interest free loan.