Do You Qualify for this Tax Credit?
November 6th 2009: Congress just extended and added more eligible buyers to what started as the $8,000 first time home buyer tax credit. This credit was due to expire November 30. This extends the likelihood of stimulating the housing market as more people are eligible for these credits.
The existing tax credit of $8,000 was for home buyers who have not owned a primary residence in their own name in last three years. It now offers a $6,500 tax credit for move-up home buyers.
The example from Certified Mortgage Planning Institute explains the credits this way: a $6,500 credit can apply to investors choosing to buy a move-up and rent an existing home. They can move out of an existing primary residence, provided they have lived there for five consecutive years in the last eight, buy a new house and rent the previous home used as a residence.
“If Jane purchased a home in 2002, lived there for 5 years as her primary home and moved out in 2007, and turned that home into a rental property she is eligible under the move-up tax credit,” says Gibran Nicholas, Chairman of the CMPS Institute. ”This tax credit based on the fact that she lived in the same residence as her primary home for at least five consecutive years out of the past eight.”
“The tax credit applies to homes purchased under a binding contract for less than $800,000 before May 1, 2010 and closed by July 1, 2010,” Nicholas said. ”It works kind of like a gift certificate that can be redeemed for cash. You simply file a form with the IRS right after you buy your home, and the IRS will send you a check for the full amount of your credit.”
“The income limitation for single tax payers went up from $75,000 under the old rules to $125,000 under the new rules. For married tax payers, the income limitation went up from $150,000 to $225,000. ”This means that more people will qualify for the credit – especially in parts of the country with higher costs of living,” Nicholas said. ”This should help stimulate parts of the housing market that may not have been impacted by the old version of the credit.”
There are creative ways of structuring your home purchase transaction in ways that maximize the benefits of the credit. Here are a few examples suggested by Nicholas (www.CMPSInstitute.org):
- The credit applies to 1-4 unit homes as long as you live in one of the units as your primary residence – you could live in one unit and rent out the others
- If two unmarried individuals buy a home, and only one of the individuals qualifies for the credit based on their income or past home ownership status, the individual who qualifies for the credit can claim the full credit. (Note: In the case of married couples, both spouses must qualify for the credit.)
The credit applies even if you have co-signers on your mortgage loan
Tags: financial planning, investment risk, move-up home buyers, rental real estate, tax credit, tax deductable, tax deductions