There’s good news about the federal tax credit for buying a home: It’s not just for “first-time” homebuyers any more. The credit has been revamped so that it’s now available to a much wider range of taxpayers, including retirees and others with sizeable annual incomes. The changes were included in the new “Worker, Homeownership, and Business Assistance Act of 2009.”
Prior to the law change, only qualified first-time homebuyers who purchased a home before December 1, 2009 could claim the maximum credit of $8,000. A first-time homebuyer was defined as someone who had not owned a principal residence during the three years prior to a purchase. Also, the credit was phased out, beginning at $75,000 of modified adjusted gross income (MAGI) for single filers and $150,000 for joint filers. The phase-out was complete at $95,000 of MAGI for single filers and $170,000 for joint filers.
 Under the new law, the credit has been extended to purchases made before May 1, 2010 (or July 1, 2010, if there’s a binding contract in place before May 1, 2010). To accelerate the tax benefits, you may elect to claim the credit on your 2009 return, even if you purchase the home in 2010.
What’s more, income limits are higher. The revised credit phases out between $125,000 and $145,000 of MAGI for single filers and from $225,000 to $245,000 for joint filers. This opens the door for a larger group of homebuyers.
Finally, the new law contains a surprise. For purchases made after November 6, 2009, you don’t have to be a first-time homebuyer in order to qualify the credit. You’re eligible for a maximum credit of $6,500 as long as you’ve owned and used your prior home as your principal residence for any five consecutive years during the previous eight years.
So, if you are retired or about to retire and are looking to downsize to a smaller home, you can effectively cut $6,500 off the purchase price. Similarly, you may be eligible for the credit if you’re relocating to another home due to a job change. And the credit is still available to young family members who are buying starter homes or moving to a larger house.
However, there are two potential drawbacks to consider:
1. The new law sets a ceiling on a home’s purchase price. For houses bought after November 6, 2009, no credit is allowed if the purchase price exceeds $800,000.
2. As under the earlier law, you’ll have to pay back the credit if you stop using the home as your principal residence during the three years following your purchase.
If you’re planning to buy a home anyway, don’t miss out on this opportunity. Cash in while you can. |