The Tax Credit Has Been Extended—And Expanded

If you missed the deadline for the first-time buyer tax credit, here’s some good news: The tax credit—which was originally set to expire at the end of November—has been extended.

And here’s more good news: If you’re currently a homeowner, you may be eligible for a new tax credit of up to $6,500.

First, let’s recap the basics of the first-time homebuyer tax credit. Under the provisions of the tax credit, if you’re a first-time buyer you can claim up to $8,000 (10 percent of the purchase price) on your income tax return. To be eligible for the tax credit, you must not have owned or co-owned a home during the three years prior to the date of closing on the new home. Also, your new home must be your principle residence—meaning vacation homes and investment properties are not eligible—and must continue to be your principle residence for at least three years following the date of sale.

As for the extension, you can still claim the tax credit provided that you sign a purchase agreement on a new home on or before April 30, 2010 and close on your home on or before June 30, 2010. Originally slated to expire at the end of November, the tax credit now gives prospective buyers plenty of time to shop for a new home in the prime buying and selling months of spring and early summer. In addition to the eligibility requirements outlined above, your adjusted gross income must be less than $125,000 if you’re single or less than $225,000 if you file your taxes jointly—which is up from $75,000/$150,000 in the previous version of the tax credit.

Current homeowners can now partake in the tax credit as well, although the credit amount and one of the eligibility requirements are different. If you have owned and lived in your current home for five out of the preceding eight years, you’ll be able to claim up to $6,500 on your federal tax return. The other requirements—purchase/closing deadlines, principle residence requirement and gross income caps—are the same for current homeowners as they are for first-time buyers under the new version of the credit. Active members of the military serving outside the United States for at least 90 days do have an extended deadline, however, as they have been granted an additional year to close on a new home (June 30, 2011).

How vital is this expanded version of the tax credit? According to the National Association of Realtors, the old version of the tax credit will have been used by 1.8 million homeowners, accounting for 40 percent of all purchases. Under the new version of the credit, those numbers will undoubtedly rise. ∆