Thinking of moving? If you are or recently have been a homeowner, this $6,500 tax credit is for you.
Many people are now aware of the First-Time Homebuyer Tax Credit. Not nearly as many are aware of the similar tax credit for current and previous homeowners.
The tax credit, $6,500, is paid back to you through the IRS when you file your tax return after closing the purchase on your new home. You don’t have to sell your current home first, so it also works for buying a second home, or buying a home for your kids.
And it is independent of what kind of financing you use.
This tax credit was put in place in November ‘09 at the same time the first-time home-buyer’s tax credit was extended. Both now require that your purchase contract be signed no later than April 30th of this year, 2010, and the transaction closed by the end of June.
So let’s start with basic qualification – if you currently or recently owned a home, and lived in it as your principal residence for at least 5 out of the last 8 years, then you are eligible, within certain not very restrictive income and price ranges. So even if you owned a home, and then sold it less than 3 years ago, you can still be eligible.
The credit is good for purchasing homes at a price under $800,000. That covers over 80% of the homes currently listed for sale in the Seattle / Bellevue area, and includes all of the price range covered by conventional financing.
To check your income qualification, first look at your latest tax return for the number called Adjusted Gross Income, the bottom line on page 1 of the 2008/2009 IRS Form 1040. The tax credit is based on a “modified” Adjusted Gross Income from your tax return not exceeding $125,000 if you file as an individual, or $225,000 if you are married filing jointly. The “modified” part is a series of not very common foreign earned income items to be added to AGI if you have them. The tax credit is reduced if you are married but filing separately. The details are here in IRS form 5405 and its mind-numbing instructions. Consult your tax professional if you’re not certain on the numbers.
If you sell the home or move out and rent it in less than three years, you’ll have to pay the credit back. Otherwise you don’t.
If you are Military or Foreign Service posted overseas, you may have an additional year (April 30, 2011) to purchase a home and claim the credit.
If you are thinking about doing this, you’d better get a move on. 90 days from now is not all that long to find a new home, when the supply of homes on the market is tightening up, and many areas are now under 5 months supply.
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