Questions About the Homebuyer Tax Credit

Here are some frequently asked questions with regards to the revisions to the Homebuyer Tax Credit program 

Must the new house cost more than the old house? No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit

I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Will I qualify for the new $6500 tax credit? Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (November 8th). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement

 I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by thetime I go to settlement, will I be eligible for a credit? Yes. The new income limitations go into effect as soon as the President has signed the bill. (November 8th).  The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement; you should be eligible for the credit (or a portion of the credit if you’re within the phase-out range).

 I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be able to use any of the $6500 tax credit?  No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit The $800,000 is an absolute ceiling.

I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?  Yes. Because you lived in the home for more than 5 consecutive years of the previous 8.  You will qualify for the $6500 credit For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home an occupied it as his principal residence for 5 consecutive years out of the last 8years. The keyword here is “consecutive.” As long as he lived in that house for 5years straight what he did since 3 years doesn’t impact eligibility.

I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?  You do not have to close before December now that the extension is signed.  Once the legislation was signed, it will be as if the Nov 30 date had never existed. Therefore as long as the contract is in place before April 30 (and closed/settled by July 1, 2010) the purchaser will be eligible for the credit

There are many more questions that can be asked about the credit.  I encourage you to either ask your tax attorney or contact me about how you can take advantage of this opportunity.

Michael Pollock is an Accredited Buyers Representative, member of the Seattle King County Association of Realtors and Licensed Loan Originator in Washington.  He also works with clients in the Tacoma/Pierce County area – visit us at www.tacomapowersearch.com