Did you know there are actually three tax credits in existence for home buyers?

  1. The original credit was for first-time buyers buying their main home between April 8, 2008 and July 1, 2009. Those folks got a tax credit of up to $7,500, but have to pay it back over 15 years. 
  2. The second credit was also aimed at first-time homeowners buying between December 31, 2008 and November 7, 2009; they received up to $8,000 that did not have to be repaid. 
  3. Finally, a third credit was extended for buyers closing between November 6, 2009 and June 30, 2010. This third credit includes not only first-time buyers but people who have already been homeowners for at least five consecutive years. The credit for long-time homeowners is equal to 10% of the purchase price, up to a ceiling of $6,500. Therefore, if you buy a new home for $65,000 or more, you receive a flat credit of $6,500. The following are some details regarding the tax advantages of closing on a new home before April 30 of next year:
  • Homeowner Status: You must have maintained the same home as your principal residence for five years during the eight years preceding the purchase of the new home;
  • Income Limits: Less than $245,000 if you are married filing jointly with your spouse or $145,000 if single. The $6,500 credit is phased out for joint filers making between $225,000 to $245,000 or singles between $125,000 to $145,000);
  • Home Price Limits: Home must cost $800,000 or less;
  • Window of Opportunity: Deal must close on or after November 7, 2009, and (1) on or before April 30, 2010, or (2) on or before June 30, 2010, if a binding contract to buy existed on April 30 2010.
The first $500,000 (or $250,000 for singles) of profit from selling your old home does not count against your credit. It also remains tax-free as usual. Not only that, you don’t actually have to sell your old home to claim the credit. For example, if you rent out your old home, you still qualify for the credit on your new home purchase. Nice of our government to cut homeowners a break on buying a new home, since many people are locked in due to the economy and falling home values.

Remember: for 2010 home purchases, you can claim the credit on either your 2009 or 2010 return. By claiming the credit on your 2009 return, you get your rebate as soon as your file your 2009 return. If you buy your new home after you file your 2009 return, you can file an amended return and claim the credit.