EDMOND — I’m writing this article on Friday morning, anticipating that President Obama will sign into law the extension of the $8,000 first-time homebuyer credit. This new legislation is really not new, but a modification and extension of the tax credit set to expire Nov. 30. A new feature added to this bill provides a $6,500 tax credit for current homeowners who sell their home and purchase a new home.
Here are the details. Please remember, as of this writing, the president has yet to sign the legislation into law.
With a few distinctions, the old tax credit becomes the new tax credit. What is the same is the definition of first-time homebuyer: Not having owned in a home for the previous 36 months. What is different is that the contract for the home purchase must be signed on or before April 30 and closing must take place on or before June 30.
Current legislation requires that closing on the property take place on or before Nov. 30. This has created a rush to close some transactions in an unreasonably short time frame. The new legislation provides a pressure release, allowing them to close after the end of November deadline and still claim the tax credit.
The new April 30 deadline for signed contracts and the extended June 30 deadline for closing provides a more flexible window for homebuyers to find the right home, agree to a purchase price all the way up to the end of next April and still have 60 days to close and claim the tax credit.
Current legislation requires the use of IRS form 5405 (found at www.irs
.gov/pub/
irs-pdf/
f5405.pdf). This is the only form available at this time, but it is certain that a new/
amended form will be released to include new tax credit guidelines. If you already have purchased a home or are planning to take advantage of this tax credit, make certain to use the correct form.
Under the new legislation, current homeowners are eligible for a $6,500 tax credit when selling their home and purchasing a new home. The catch is the tax credit is available only to those homeowners who have lived in their current home for at least five years. The home must be sold and a new contract must be signed on or before April 30 and closing must transpire on or before June 30.
Under the legislation set to expire Nov. 30, maximum adjusted gross income limits are $75,000 for singles and $150,000 for those married filing jointly. The new legislation increases these limits to $125,000 single and $250,000 married filing jointly. This increase should make the tax credit available to more middle-class Americans.
The recent “Cash for Clunkers” tax credit program was touted a success because more than 600,000 new vehicles were purchased under the program. The surprise for many of these new car owners is that they will be required to count the $4,500 tax credit as income on subsequent tax years. If you are in the 33 percent tax bracket, this would mean a sizable increase in your tax liability.
It has yet to be finally determined if those who have taken advantage of the existing $8,000 tax credit or those who will take advantage of the new legislation will be required to claim the amount of their tax credit as income in subsequent years’ tax returns. It would be wise to consult your CPA and get all the information before making your final decision regarding the existing and the new homebuyer stimulus tax credit.
TREY BOWDEN is a licensed mortgage provider in Edmond. To read more, go to homeownergone
mad.blogspot.com.
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