The "New" First Time Home Buyer Tax Credit

Congress voted to extend and expand the $8,000 First-Time Home Buyer Tax Credit on Thursday. The bill is expected to be signed into law Friday.

If you're planning to claim the tax credit, the first thing you'll want to know is the new drop dead dates.

You must be under contract by April 30, 2010
You must be closed by June 30, 2010

Apparently this program worked so well the first time they have given us one more shot. And I really think they mean it this time.

The First-Time Home Buyer Tax Credit was originally part of the American Recovery and Reinvestment Act of 2009. It granted qualifying first-time homebuyers a tax credit of up to $8,000 as a means to stimulate entry-level home purchases.

Since its February 2009 passage, the First-Time Homebuyer Tax Credit helped to place 400,000 new home owners which, in turn, lowered housing inventory, raised home prices, and generated new tax revenues for local cities.

Figures like these persuaded Congress to grant the program a 30-week extension, and also to extend its reach.

The "First-Time Home Buyer Tax Credit" isn't just for first-time home buyers anymore.

Under the new rules, homeowners with at least 5 years in their current residence qualify for the tax credit, too. However, instead of the full $8,000 bonus afforded to first-timers, "move-up" buyers get capped at $6,500.

Most of the program's qualification criteria remains as-is, with a few notable changes:
You may not acquire the home from a mother, father, spouse, or child
You may not acquire the home from an entity in which you're a majority owner
You may not acquire the home by gift or inheritance
You must be 18 years of age or older

The subject property's purchase price may not exceed $800,000

The subject property must be meant for use as a primary residence

All parties to the purchase must be meet the eligibility requirements

And then assuming you qualify, there are two ways by which your credit can be reduced.

First, the tax credit is limited to 10 percent of the home's purchase price. If the subject property sells for $75,000, your credit is limited to $7,500. And, second, your income can affect the credit, too.

Single-filers earning more than $125,000 and joint-filers earning more than $225,500 forfeit 5% of the expected tax credit for each $1,000 in earnings over the program's limit. A single-filer earning $135,000, therefore, gets 50% of the tax credit. A single-filer earning $145,000 gets none.

If you qualify, claiming your tax credit is simple:

Go under contract by April 30, 2010
Close by June 30, 2010

Submit IRS Form 5405 and your HUD-1 settlement with your tax returns

That's it!

But beware -- the First-Time Home Buyer Tax Credit program comes with some sensitive spots. For example, if you sell your home, or stop using it as your "main home" within 36 months of your purchase, the IRS will require a 100% payback. This means flipping properties for resale will be afforded this expense to take into consideration. This policy has few allowable exceptions so don't count on getting one.

Also, I recommend that first-time (and move-up) buyers review the IRS "scenario page" -- it's got every wacky home-buying setup you could think of. Most "Do I qualify for the First-Time Home Buyer Tax Credit" questions are answered pretty clearly from the government guys that make the final call.

If you haven't already, take advantage of this great opportunity to buy a home at bargain basement prices