Home is where the heart is -- not only for families, but also for the U.S. economy. So much so, that new legislation has extended and expanded the tax credit for home purchases.
To continue to stimulate home sales, the new law makes more taxpayers eligible for a tax credit, including those who already own homes and those with higher modified adjusted gross incomes.
Here's the who, what, and when of the home buyer tax credit:
Who is eligible
First-time home buyers, defined as those who haven't owned a principal residence for three years before the purchase
Existing home owners who have lived in one residence for five consecutive years of the past eight
Owners must live in the home for at least three years after the purchase or must pay the credit back
[AD]To claim the full credit, modified adjusted gross income is limited to $125,000 for single taxpayers and $225,000 for married couples filing joint returns; partial credits may be available for those with higher incomes. (The previous income limitations for the full credit were $75,000 for individuals and $150,000 for joint filers.)
What it is
Eligible home buyers receive a tax credit: That's a dollar-for-dollar tax reduction. If you don't pay enough taxes to offset the credit, you can get a tax refund for the difference. For example, if you qualify for an $8,000 credit, but only owe $6,000 in tax, you would receive a $2,000 refund check.
First time buyers are eligible for up to $8,000; existing home owners for up to $6,500, but no more than 10 percent of the purchase price
The home purchase price must not exceed $800,000
An existing home owner is not required to sell a current home, but must use the purchased home as the new principal residence
The new home doesn't have to cost more than the old one
The purchase can't be from, among other family members, your ancestors (parents or grandparents and so on), your lineal descendants (children, grandchildren, and so on) or your spouse or your spouse’s family members
The credit is available for sales contracts in place between now and April 30, 2010, but the closing must occur prior to July 1, 2010
The sale must close; you cannot claim the credit with only a sales contract
You must submit proof of settlement, typically a copy of the HUD-1 form
If you buy the home in 2009, you may claim the credit on either your 2008 or 2009 returns
If you buy in 2010, claim the credit on either your 2009 or 2010 returns
For details, see your tax advisor or visit www.irs.gov.