What you should know about the
Repeat Buyer & First-Time Homebuyer Tax Credit
The exciting thing about this new Homebuyer Tax Credit is that it includes both First-Time Homebuyers and Repeat Homebuyers; plus it benefits both buyers and sellers,
First-Time Homebuyers can take advantage of the tax credit up to 10 percent of the cost of the home, up to a maximum credit of $8000. (For example, a home purchased for $80,000 or more would qualify for the full $8,000 credit while a $70,000 home would only qualify for 10 percent, or $7,000). A first-time homebuyer is defined under the tax credit as an individual who has not owned a home in the last three years. For married joint filers, both must meet the first-time homebuyer test to take the credit on a joint return.
Repeat Homebuyers can take advantage of the tax credit up to 10 percent of the cost of the home, up to a maximum credit of $6,500. A Repeat Buyer is defined under the tax credit as an individual who has owned and resided in a home for 5 consecutive years. The 5 consectutive years of residency could have taken place anytime over the last eight years.
Military Families and the Intelligence Community receive special provisions. Homebuyers who have served as a member of the military or the intelligence community outside the United States for at least 90 days from January 1, 2009 through April 30, 2010 recieve additional time to take advantage of these tax credits. The time frame to purchase a home is extended until April 30, 2011. Further members of the military and intelligence community who have to sell their home before they have occupied it for 3 years will not have to repay the tax credit if they are required to move due to official business.
Other details of the tax credit include
The temporary credit is only available for home purchases that occur after November 6, 2009 that have a binding contract in place by April 30, 2010 and close before June 30, 2010.
Buyers claim the credit on their federal tax return to reduce their tax liability. If the credit is more than their total tax liability that year, the buyer will get a refund check for the balance.
Eligible properties include anything that will be used as a principal single-family residence- including condos and townhouses.
There are income guidelines on the tax credit. The tax credit begins to phase out for individuals who earn over $125,000 and for couple who earn more that $225,000.
The new tax credit does not need to be repaid if the buyer stays in the home at least three years. But if the home is sold before that, the entire amount of the credit is recaptured on the sale.
What's the big picture
Lets outline why this tax credit is good for you whether you are a buyer or a seller. Obviously, homebuyers will benefit from this tax credit when they receive a $6,500 or $8,000 tax credit but this tax credit benefits sellers as well. We have been experiencing a buyer's market which means there are more homes for sale than people who want to buy them. In a buyer's market it is harder to sell your house for the price you want.
In 2009 there was a $8,000 tax credit that only applied to first-time homebuyers. The result of that tax credit was a surge of first-time buyers entering the market who were motivated by the $8,000 first-time tax credit. A large number of homes were sold directly related to that first time homebuyer tax credit. The National Association of Realtors reports that first-time homebuyers accounted for 47 percent of all homes sold in 2009.
The goal of most sellers is to sell their house for the highest price possible in the shortest amount of time possible. Since the tax credit will bring more buyers into the market the impact of this tax credit on sellers will be a positive one. This new tax credit not only will bring more buyers into the market; it will also bring them into the market earlier in the year than normal since they need to have a binding contract by April 30, 2010. Sellers would be smart to get their homes on the market early in 2010 so that they can be under contract before this temporary tax credit expires and the pool of buyers starts to shrink. Selling you home before the deadline also allows you to find a home and take advantage of the tax credit as a buyer.
Call me today to discuss your situation and goals so we can determine the best time to put your home up for sale.
To discuss the tax credit in greater detail contact Steve Sexauer at (618) 973-6648 or email Steve at steve@stevesexauer.net