Tax Credit Guide

Extended tax credit benefits buyers

By Liz Baker
Tennessean Custom Publications

The real estate market received another boost recently with the announcement that the first-time home buyer tax credit has been extended beyond Nov. 30, 2009, to April 30, 2010. As part of the Worker, Homeownership and Business Assistance Act of 2009, the tax credit program also features a new twist — it now includes a benefit to previous or current homeowners as well.

“It’s not just a first-time buyer tax credit anymore,” says Joe Robson, chairman of the National Association of Home Builders, in a recent press release. “Move-up buyers, move-down buyers and others who have previously owned a home can now qualify as well. In fact, close to 70 percent of all potential home buyers should now qualify for some form of the credit.”

According to the NAHB, the new law extends the $8,000 first-time home buyer credit through April 30, 2010, which gives buyers who have signed a sales contract by that deadline until June 30 to close their deal. As part of this same program, an additional credit of up to $6,500 has been added for repeat home buyers who buy a principal residence if they have lived in the home they currently own (or previously owned) for five consecutive years out of the eight years preceding the purchase of the new home. The April 30/June 30 deadlines also apply to the $6,500 credit.

“In the case of The Jones Company, many of our home buyers aren’t first-time buyers but are buying their second, third or fourth home,” says Bridget Wright, marketing director at The Jones Company. “And with the recent changes to the tax credit that made it available to existing homeowners as well — many of our buyers are now able to directly benefit from the tax credit.”

In fact, when it comes to buying a new home, some builders are making the tax credit an even better deal. Southeastern Building Corporation is offering a Double Your Home Buyer Tax Credit promotion, where the company will offer either $6,500 (for repeat buyers) or $8,000 (for first-time buyers) toward upgrades or closing costs if buyers close on a new home by April 30, 2010.

“From a new home standpoint, it’s a great time to buy,” says Tommy Jarratt, sales manager and principal broker at Southeastern Building Corporation. “We have a build time of four months, and the tax credit falls within the window of building and closing on a home before the deadline.”

Although there’s a lot of positive buzz about the tax credit, homeowners should have realistic expectations that not everyone can qualify and that many stipulations are in place for both repeat and first-time buyers. According to the NAHB, the new credit applies to single-family detached homes, attached homes (like town houses and condominiums), manufactured homes (also known as mobile homes) and houseboats — provided the home is purchased for a price less than or equal to $800,000. The purchased home does not qualify for credit when purchased from lineal descendants (like children) or ancestors (such as grandparents).

In addition, income limits for repeat/first-time buyers have also been increased to allow more consumers to qualify, particularly those in markets with a higher cost of living. Now, single taxpayers with incomes up to $125,000 and married couples earning up to $225,000 may be eligible. Partial credits are available to home buyers who earn up to $20,000 more than the limits.

Wright says if you think you might qualify for either of the tax credits, now is the time to buy a new home in order to take advantage of what could be the deal of a lifetime.

“Right now, the stars are truly aligned in favor of the new-home buyer: they get low interest rates, the lowest prices in years on new homes, and, in many cases, special incentives, too. The money they might think they are ‘losing’ on the sale of their existing home is often made up several times over by the value they are getting on the new home they buy,” says Wright.

The tax credit and its restrictions can be complicated and difficult to understand. If consumers have questions, they should talk to a tax advisor or homebuilder to learn more. More information is also available at www.irs.gov.