Breaking News/RISMEDIA, November 6, 2009 – After the Senate gave final approval last night without a dissenting vote, the House of Representatives voted overwhelmingly this afternoon to pass legislation containing an extension and expansion of the home buyer tax credit, completing Congressional action and sending the tax credit to President Obama for his signature, possibly as early as tomorrow.

The $8,000 homebuyer tax credit for first-time buyers, due to expire in 25 days, will be extended through April 30 of next year and buyers will have an additional two months, until the end of June, to close.  First-time buyers who are in the process of making a purchase will no longer need to worry about qualifying for the $8,000 tax credit if they close after the November 30 deadline.  The new legislation increases the income limit for couples with income up to $225,000, a nearly $55,000 increase above the level in existing law.

For the first time, the new legislation makes buyers who already own a home eligible for a credit.  A $6,500 maximum credit will be available to existing homeowners who have lived in their current residence for five of the prior eight years.  The legislation limits eligibility for the existing homeowner credit to homes worth $800,000 or less.

The legislation takes effect December 1 and is not retroactive.  Both credits are available only for primary residences, not second homes or investment properties.

SAN ANTONIO (San Antonio Express-News) – The Texas Department of Housing and Community Affairs is no longer accepting applications for short-term loans to homebuyers eligible for the $8,000 federal tax credit.

Because first-time homebuyers generally have enough money to cover their down payment, but not always enough to pay closing costs, the state has been offering 90-day loans since July to help them use the federal tax credit.

Since the department set aside $7.5 million and began offering the loans, it has received 1,225 applications. It stopped accepting loans to ensure it could process them by Dec. 1, the deadline to finalize home purchases while taking advantage of the tax credit.

This is from an article in the Wall Street Journal and I thought my readers would find it interesting…

First-time home buyers are scurrying to qualify for a federal tax credit that expires at the end of November — a trend that has been propping up sales following the worst downturn in decades. Because the closing process can drag on, buyers realistically have just a few weeks left to sign contracts; and they are submitting multiple offers to be certain that one goes through. Although lawmakers have proposed to extend and expand the credit, prospects for such a move are dimming as legislators are urged to show fiscal restraint following mega-bailouts of the financial and automobile sectors. Some housing analysts worry that the credit sparked unneeded supply and that its expiration could drag the market back down.

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HOUSTON (Houston Chronicle) – The window for first-time homebuyers to take advantage of the $8,000 federal tax credit will close at the end of November.

To qualify for the credit, any transaction involving a first-time buyer must close before midnight on Nov. 30, 2009.

Tax credit guidelines are discussed in the Houston Chronicle and in past issues of RECON.

I have been asked by many first time home buyers, “What is the difference between the $7,500 Tax Credit and the $8,000 Tax Credit?”  

Steve Kaufman is a CPA that published an article titled FREE MONEY in the Houston Realtor Magazine that explained the tax credit in detail.  He included a helpful chart that parallels the differences between the two tax credits, but that magazine is not available to the public.  Using the facts from his article, I would like to explain the difference between the two tax credits to my readers.

Both tax credits can only be used by first time home buyers.  The $8000 tax credit is referred to as the American Recovery and Reinvestment Act of 2009.  This has been defined as someone who has not owned a primary residence during the last three years.  Once you buy the home you must occupy the house as your primary residence for at least three years or the tax credit you receive will be owed back to Uncle Sam.  Both of the tax credits apply to new construction homes, resale homes, manufactured homes, Townhomes, and Mobile homes.

The $7,500 Tax Credit was more of an incentive than a tax credit because it has to be paid back within 15 years, interest free, starting in 2010.  It applies to first time home buyers that purchased their first home between April 9, 2008 and January 1, 2009.  It must be filed with 2009 tax returns for credit to be received. 

The $8,000 tax credit is for first time home buyers that purchase between January 1, 2009 and December 1, 2009 and it never has to be paid back.  It’s just free money from your Uncle Sam.  It can be claimed on your 2008 or 2009 tax return.  So if you are a first time home buyer you will need to close by December 1st which means you should be house hunting now.  It takes atleast 30 days to close on a home unless you are paying cash.

When you file your annual tax return you can claim this credit using IRS Form 5405.  If you claimed the $7,500 and are eligible for the $8,000 tax credit you can ammend your tax return by using IRS Form 1040X.  The maximum credit allowed for the $8,000 tax credit is 10% of the sale price up to the $8,000.  The maximum credit calculation for the $7,500 tax credit is 10% of the sales price up to $7,500.  To receive the maximum credit your income must be below $150K for married couples or $75,000 for individuals. 

Rather than waiting until tax filing for the $8,000, an advance on the credit is available on the credit from the U.S. Dept. of Housing and Urban Development (HUD).  The advance is available for first time home buyers using FHA-Approved lenders.  As an advance, the funds can be applied toward the down payment or closing costs.

Steven offered a great tip in his article.  If you are a first time home buyer and are sure you will purchase by December 1st and qualify for the tax credit, you can go ahead and start taking advantage of the tax credit by adjusting your payroll tax withholding with your employer by filing an updated IRS Form W-4 which will reduce your income tax withholding and will increase your take home pay which can be saved for your down payment.  I consulting with your tax accountant is recommended.

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