Congress created a financial windfall for retirees and those near retirement. When it extended the first-time home buyer’s credit in November it also greatly expanded the credit. The $8,000 credit for first-time buyers (and those who haven’t owned a home for at least three years before the closing) was extended, and a new $6,500 credit was created.
The $6,500 credit is available to longtime residents of the same home who are buying another home. A credit of 10% of the purchase price of the new home, up to $6,500, is available to taxpayers who lived in the old home for at least five of the eight years ending on the closing date on the new home purchase. You must have a contract on a new home before May 1, 2010 and close before July 1, 2010. Homes selling for more than $800,000 don’t qualify for either credit. You might have to refund the credit if you sell the new home within 36 months of the purchase.
Single taxpayers with modified adjusted gross income up to $125,000 receive the full credit, as do married couples filing jointly with MAGI up to $225,000. The credit phases out over the next $20,000 of MAGI above these levels. Taxpayers with higher incomes don’t qualify for the credit.
The credit is a gift to those who want to downsize or move in 2010. First, potential buyers of your current home are likely to benefit from one of the credits, making the home easier to sell. Second, the credit reduces the cost of buying your new home. If you were planning to move or downsize in 2010 or even a few years later, consider accelerating your plan to qualify for the credit.
Remember this is a tax credit, not a deduction. The credit reduces your tax bill dollar for dollar. In addition, this is a refundable credit. When your tax bill for the year before the credit is less than the credit, the difference is refunded to you. Suppose your income tax bill is $5,000 in 2010 and you qualify for a $6,000 home buyer’s credit. The credit offsets your entire $5,000 tax bill, plus you receive a $1,000 refund. You also can choose to claim the credit on your 2010 tax return (the year when the home is purchased) or file an amended 2009 return, claim the credit there, and receive an immediate refund.
December 2009. RW
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