Popular first-time homebuyer tax credit renewed, broadened

Taxpayers now have until April 30, 2010 to take advantage of the tax credit available to first-time homebuyers. The popular measure, which was set to expire Nov. 30, 2009, not only extends the deadline but also expands eligibility for who can qualify for the tax break.

Here's what you need to know.

You can claim the tax credit of up to $8,000 if you purchase a primary residence by April 30, or have a home purchase under contract by that date. To remain eligible, the home purchase must close by June 30, 2010.

You qualify for the tax credit if you have not owned a “primary residence” for three years prior to the purchase. Married couples also qualify as long as both spouses have not owned a primary residence in the three-year period. Under the law, a primary residence is where you live most of the time. It can be a single-family home, condominium, co-op apartment, houseboat or mobile home. You can claim the tax credit even if you currently own a vacation home or rental property, as long as those properties were not your primary residence for the previous three years.

Members of the armed services serving overseas are entitled to the credit until May 2011.

Under the new law, current homeowners wanting to purchase a new home are now eligible for a tax credit of up to $6,500. This expansion of the homebuyer credit applies to new home purchases between Nov. 7, 2009 and April 30, 2010, and is available to those individuals and families who have owned and lived in their current home for at least five years consecutively during the eight years prior to the purchase of a new home.

The 2008 version of the tax credit law requires taxpayers to repay the credit in equal installments (interest free) over time. The new law removes this obligation altogether, effectively treating the tax credit as a gift instead of an interest-free loan.

The tax credit is refundable up to $7,500 to those individuals and families who owe little or no federal income taxes.

Congress has also raised the income limits on the measure: $125,000 or less for individual tax filers and $225,000 for married couples filing tax returns jointly. Reduced tax credits are available to individuals earning $125,000 to $145,000, and married couples earning $225,000 to $245,000. Special rules apply to determining income, and a tax expert can help you assess your income eligibility.

Buyers of high-value homes are not eligible since the tax credit applies only to home purchases of less than $800,000.

Because of reported tax fraud abuses under the prior law, the new law includes a minimum age (18) for home purchasers, and requires documentary proof of a purchase.

Individuals claimed as dependents by other taxpayers are not eligible for the tax credit.

The consultants at James T. Borello would be happy to help you assess your individual situation and rights under the new law, as well as prior versions of the law affecting home purchases in 2008 and 2009.