Announced in November, 2009, new tax credits not only offer first-time buyers incentives to purchase a new home [up to $8,000], but all buyers, even those who already own homes. If you’re seeking to change your house and take advantage of low home prices and interest rates, now’s the time!
If you’ve owned your principal residence for 5 consecutive years of the last 8, you’re in. If you’re planning to live in your new home as your principal residence, you’re in. If you’re single, you can earn up to $125,000 adjusted gross income and still receive the full credit of $6500. For married folks, that’s $225,000 adjusted gross income. Singles earning $125,000 to $145,000 and marrieds $225,000 to $245,000 can still get incrementals of the tax credit.
What’s the Deal?
Your new home cannot cost more than $800,000. Beyond that, I guess the feds’ feeling is you can handle the costs yourself. And the credit is actually 10% of the purchase price up to a limit of $6500. Your purchase contract must be dated between November 7, 2009 and April 30, 2010. And, you must close on your deal no later than June 30th.
Notice: Your new home’s price has no relation to your previous home’s value. This tax credit is for move-up buyers, downsizing buyers and relocating buyers. The legislation has no provision regarding the price of the new home.
In case you were wondering, you are not required to sell your previous home. A detail announced by the IRS, however, states you are not eligible if you convert your previous home into a rental. It does seem, though, you could short sale your previous home and still purchase a new home with the federal tax credit using the special loan mentioned in a previous post. Another detail is that you must live in your new home for which you received the tax credit for 36 months or you might have to repay it.
What’s the Catch?
Really, there’s no catch. The federal government is trying to send some “stimulus” to the average taxpayer and to the moribund housing industry. As we know, the buyers’ tax credit was extended and this one for move-up buyers added, so there’s little likelihood that this will be extended again…
The main catch to this program is the same for any government program. It requires proper paperwork. Especially this time around, after many proven cases of out-and-out fraud in the buyers’ program, the IRS is determined to make sure all claims are valid.
So, here’s what you need: a copy of the HUD-1 settlement sheet from your new property. This gives the sales price and date of closing. You will need some evidence of the 5 consecutive years at the previous property–property tax, homeowners’ insurance or the like. And revised Form 5405 available at www.irs.gov.
That’s it. You’re in business. Now go get that property.