Friday, February 26, 2010

Say Good-Buy to Home Buyer Tax Credits

Late in 2009 President Obama signed legislation extending the home buyer tax credit through the first third of 2010. Well, here we are at the end of February and we’re counting down the days until the home buyer tax credit becomes a thing of the past and a topic of regret for many would be home owners.

April 30th is the drop dead deadline for anyone wishing to take advantage of these tax credits to be “under contract” to purchase a home. The term “under contract” literally means that you have a signed purchase agreement with the seller of a home that you want to buy. If you decide not to buy that specific house, not only do you run the risk of losing your earnest money but if you make that decision after April 30th, you will no longer qualify for the tax credit.

Attention. If you have thought about buying your first home, or selling the one you are in and buying a new home, today is the day to take action on those thoughts. This generous legislation has only 62 days remaining before it is gone.

I’ve heard many people speculate, “Oh, the government extended it once, they’ll extend it again, so I’ve got time.” Really? Don’t be so sure about that. I’ve got my finger on the pulse of the housing and home financing market and I’ve heard no such chatter about extending the tax credits.

“Yeah, but when April gets here, the government will see that there are still too many unsold houses and they’ll extend it again.” Again, really? Over the last year and a half, the number of unsold homes in the nation has dropped. According to Harley Wood Market Intelligence, “Existing home inventory levels posted its fifth consecutive month of declines in December. Inventory of existing homes dropped 6.6% percent to a preliminary 3,289,000 units from 3,521,000 units in November. This is the lowest level of existing home inventory units on the market since March 2006. December's inventory level is 11.1% lower than the 3.700 million units of inventory a year ago. Existing home inventory has recorded year-over-year declines for the past seventeen straight months. Recent increases in sales activity due to lower rates and the extended homebuyer tax credit have helped to improve inventory levels.” (February 26, 2010 at

So if you’re still wondering if now is the time to shop for a home, let me review the dollars that make sense in this equation.

If you haven’t owned a home in the past three years (that’s 36 consecutive months) you qualify for the maximum tax credit of $8,000. The tax credit can be applied when you file your 2010 taxes or you can file an amended 2009 tax return to include the credit. Either way, that a credit directly applied to the taxes you owe. I don’t know about you, but $8,000 is a lot of money. If you have owned a home and have lived in that home for 5 (five) of the past 8 (eight) years, you qualify for the $6,500 tax credit when purchasing a new home.
There are a couple of stipulations for both of these programs including income limits and purchase prices, but check with the lender of your choice to get the specifics. The most important stipulations are the deadlines. You must be under a binding contract to purchase a home no later than April 30, 2010 and you must close on that transaction no later than June 30, 2010.

The tax credit is a refundable credit which means that it reduces the tax bill you owe for the year you apply it. And if the tax credit reduces your tax bill below zero, you’ll get the difference as a tax refund. You’ll need to file tax form 5405 and include a copy of your settlement statement (a.k.a. HUD-1) from your closing to prove that you actually bought the home.

For parents considering this opportunity for their children, let me close with this information. The minimum age for claiming this tax is 18 years, at the time of closing. Also, anyone claimed as a dependent on someone else’s taxes is ineligible to claim the home buyer tax credit.