Frequently Asked Questions on the Homebuyer Tax Credit
Question: Existing homeowner credit: Must the new house cost more than the old house?
Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.
Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. Do I qualify for the new $6500 tax credit?
Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (November 6, 2009). There is no reference to the date of contract for the new credit. The provision looks solely at the date of purchase, which is generally the close or settlement date.
Question: I am a first-time homebuyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I am covered, however, by the new income limits. If I close in settlement after November 6, 2009 am I eligible for the credit?
Answer: Yes. The new income limitations went into effect on November 6, 2009. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the closing or settlement date. So, you are eligible for the credit, or a portion of the credit if you’re within the income phase-out range.
Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a non-negotiable price of $825,000. Will I be eligible for any of the $6500 tax credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.
Question: I owned my home for 10 years, but sold it two years ago and have been renting since. If I purchased a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer: Yes. Because you lived in the home for at least 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when they got divorced. Whether John has been renting or bought in the interim, he would indeed be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive”. As long as he lived in that house for 5 years straight what he did since 3 years does not impact eligibility.
Question: I am an eligible first-time homebuyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1, 2009? How does the extension date effect me?
Answer: You do not have to close before December 1. Once the new legislation was signed, it is as if the November 30 date had never existed. Therefore, so long as the contract closes or settles before April 30 (or July 1 wors case), the purchaser will be eligible for the credit.
For more information use the link below to visit the IRS website.
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