Homebuyer Tax Credit Expanded, Extended

In 2008, Congress enacted a $7500 tax credit designed to be an incentive for first-time homebuyers to purchase a home. In 2009, Congress increased the credit to $8000. Now the tax credit has been extended and also expanded to include current homeowners. This revised tax credit applies to purchases on contract before May 1, 2010 and close before July 1, 2010.

Frequently Asked Questions
1. What’s this homebuyer tax incentive for 2010?
Any home that is purchased for $80,000 or more qualifies for the full $8000 amount. If the house costs less than $80,000, the credit will be 10% of the cost. Thus, if an individual purchased a home for $75,000, the credit would be $7500.

2. Who is eligible?
First-time homebuyers are eligible for the full $8000. However, homeowners who have lived in their current homes for at least five of the last eight years are eligible for up to a $6,500tax credit when they purchase a new home. A person is considered a first-time buyer if he/she has not owned a home in the past three years. For married couples filing jointly, both must meet the first-time buyer criteria in order to qualify.

3. How does a tax credit work?
Every dollar of a tax credit reduces income taxes by a dollar. Credits are claimed on an individual’s income tax return. Thus, a qualified purchaser would figure out all the income items and exemptions and make all the calculations required to figure out his/her total tax due. Then, once the total tax owed has been computed, tax credits are applied to reduce the total tax bill. So, if before taking any credits on a tax return a person has total tax liability of $9500, an $8000 credit would wipe out all but $1500 of the tax due. ($9,500 - $8000 = $1500)
For more frequently asked questions, go to http://www.realtor.org/government_affairs/gapublic/homebuyer_tax_credit