Extension and Expansion of Homebuyer Tax Credit

Last Friday, President Obama signed into law a bill that includes provisions to extend and expand the $8,000 credit for first-time homebuyers. The credit, due to expire on November 30th of this year, will be extended to contracts signed thru April 2010, for purchases completed by the end of July 1, 2010. In addition, there is a new $6500 credit for current home owners who purchase a home and the income limits for purchasers have been increased substantially – singles can now earn up to $125,000 and couples still qualify for the full credit with a combined income of $225,000.

The eligibility for first time buyers (the $8000 credit) remains the same – i.e., buyers must not have owned a principal residence for the 3 years prior to purchase. For the current homebuyer (the $6500 credit), the requirement is that they must have been in their current home consecutively for 5 of the past 8 years.

The new income limits as noted above apply to the full credit. There is a “phase out” of an additional $20,000 in each category (single and married); so buyers who fall within that income limit would get a reduced tax credit. In other words, single buyers who earn $145,000 or more would be totally ineligible as would married buyers who earn $245,000 or more.

This new law also places a limit on the cost of the home that is eligible – and that is $800,000. So, regardless of the income of the buyers, if the house is sold for more than $800,000 no credit would be received (do you think we’ll see a lot of $800k homes negotiated to a price of $799k?). And, remember, the credit is 10% of the purchase price, up to a maximum of $8,000.

The new law went into effect on the date it was signed by the President…so the new income limits and the extension to current homeowners is effective immediately.