THE TIME FOR TAX CREDITS IS RUNNING OUT !
According to Lawrence Yun, the chief economist for the National Association of Realtors, some 4.4 million households will claim the tax credit before is set to expire April 30, 2010.
You May Be Able To Use The Credit To Buy the Home !
The federal government now allows buyers using FHA-insured mortgages to apply their anticipated tax credit toward their home purchase immediately rather than having to wait until they file their respective income tax returns. The funds may be used for certain down payment and closing cost expenses.
Three Versions Exist - The Current One
The current version extended the first time buyers $8,000 credit eligibility date to being under contract by April 30, 2010 (and closing by June 30, 2010). It also added a credit for "long term" homeowners who purchase a new primary residence between November 7, 2009 and April 30, 2010 (and closing by June 30, 2010). That credit is a maximum of $6,500.
However, the actual value of the credit is equal to 10% of the purchase price or the $8,000 / $6,500. This means the credit is reduced for homes purchased for under $80,000 and $65,000, respectively.
Both credits first go to any outstanding tax liability on your federal return, with the balance, if any, being refunded to you - assuming you have not used it with your purchase as mentioned above.
For the purposes of the tax credits the purchase date is the date of closing and title is transferred. There are some limited exceptions for certain contract for deed purchases and installment sale purchases.
Restrictions Do Apply
You do not automatically qualify for the credit.
First, the house has to be used as the primary residence. If it is purchased after November 6, 2009, it cannot have cost more than $800,000 - not even by $1. If you are claiming the long-term homeowner credit you must have lived in the same house consecutively for five out of the past eight years – but you don’t have to have lived in or owned that house at the time you buy the new house.
For homes purchased after November 6, 2009, the credit begins to phase out for individuals with modified adjusted gross incomes (MAGI) over $125,000 and drops to zero at $145,000 with married couples filing jointly losing out with incomes over $225,000 and zeroing out at $245,000 MAGI.
Claiming The Credit
To claim the credit you must fill out Form 5405. You will also need to submit a copy of your HUD-1 Settlement Statement with the names and signatures of all parties, property address, the sales price and date of purchase.
If you are claiming the long-term homebuyer’s credit, the IRS is recommending that you provide documentation to show you meet the requirement for consecutive years. These might include mortgage statements, property tax records and the like.
Many Homes Qualify as a Primary Residence
According to the IRS, your primary residence is the one in which you live in the majority of the time. It can be a house, houseboat, mobile home, condominium or coop. Homes outside the U.S. do not qualify nor does any type of business property.
Can I Make My Existing House a Rental Property?
There is nothing written that requires you to sell your existing home to qualify for the credit. But you cannot make the new home a rental for three years – otherwise you will have to repay the credit.
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The information contained in this article is for general informational purposes only. It is deemed reliable, but is not guranteed. You are strongly advised to consult your accounting and financial planning professional to see how the credits may apply to your situation.