Changes to the New Homebuyer Tax Credit

In a highly anticipated move, lawmakers extended the tax incentives to keep homes selling in the real estate market. Over the last several months, thousands of first-time homebuyers took advantage of the $8000 tax credit and purchased their first home, helping to stabilize falling real estate prices in the process. This credit was set to expire at the end of November, but it has been extended and changed so that more people can now take advantage of the tax incentive. So far, the program has put $10 billion into the pockets of homebuyers that would have been collected as tax revenue. The additional time added to the program will cost the government an estimated $10.8 billion more.

The new program is available now it extends to purchases made through April 30, 2010 as long as those sales close by June 30, 2010. Although there are some similarities in the new bill to the original program to help first time homebuyers, there are also some key differences that are important to understand for anyone in the market for real estate.

What’s the same?

First Time Homebuyer Rules: The definition of a first time homebuyer has been one of the key elements of the program and that definition has not changed. To qualify, a buyer must not have owned a home for at least the past three years. In addition, the incentive is not available for vacation homes or rental properties and the homebuyer must become a resident of the home to qualify.

The Terms: The amount of the tax credit for first time homebuyers has not changed. The maximum credit is $8000 and for homes purchased for less than $80,000, the maximum tax credit is 10% of the purchase price.

What’s changed?

Other Homeowners Now Qualify: The tax benefit for purchasing homes has been extended to more than just first time homeowners. Anyone who has lived in their primary residence for at least five of the past eight years can qualify for a tax credit of up to $6500. There are income limitations for people trying to qualify for the tax credit and according to current homeowner statistics, about 70% of current homeowners are currently qualified for the tax credit. This could provide a big incentive for people who have been considering moving while home prices are low.

Fraud Protection: The new legislation passed by lawmakers closed some of the loopholes that homebuyers had found in the original version of the program. Hundreds of millions of dollars worth of fraudulent claims have been filed. Many of the new homeowners that received tax credits were under the age of 18, with one proud new homeowner as young as four years old! Thousands of other taxpayers also claimed the tax credit in spite of the fact that they had purchased other homes within the past three years. More detailed documentation must now be collected to take advantage of the tax credit.

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