The motive behind the extension is apparently that the ‘Government’ feels lender volumes have made it impossible to get transactions closed by the original deadline. They are now estimating that 180,000 people will miss out if the extension is not granted. While this may be true with loans that are being processed by many of the big banks, I know for a fact that there is at least one solid mortgage lender in the greater Phoenix area who can and does fund loans in as little as two weeks. Current volumes have not slowed them down at all, regardless of the type of loan -  they are doing as long as they can do it house (Conventional, VA, FHA and Jumbo). If you are one of those buyers whose lender is being wishy-washy about closing your loan before the end of June, or your lender has flat out stated that they cannot get it done for you, then please feel free to contact me. I would be more than happy to refer you to an outstanding lender who would love to have your business and get your loan funded and transaction recorded before June 30, 2010.

Flickr Image by wstryder

I have been an outspoken critic of the federal tax credit for home buyers from the beginning, and I continue to hope that the tax credit for home buyers is not extended or resurrected by Congress. If we are ever to have a real shot at returning to a ‘normal’ market, and hopefully ‘free’ market, then the government intervention has to stop.  Don’t you think?

The National Association of Realtors says the new provisions — a longer time frame for the $8,000 first-time home buyer credit, higher income limits and a $6,500 credit for certain repeat buyers — developed a handy “compare the tax credits” chart that you can find here, but I’ve also posted it below.

Here are some key aspects of the new law:

Tax Credit for Home Buyers

First-Time Home Buyers: First-time home buyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for first time home buyers is 10% of the purchase price of the home, with a maximum available credit of $8,000.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

New Deadlines

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

Tax Credit Versus Tax Deduction

It’s important to remember that the tax credit is just that… a tax credit. The benefit of a tax credit is that it’s a dollar-for-dollar tax reduction, rather than a reduction in a tax liability that would only save you $1,000 to $1,500 when all was said and done. So, if a first-time home buyer were to owe $8,000 in income taxes and would qualify for a tax credit of $8,000, she would owe nothing.

Better still, the tax credit is refundable, which means the home buyer can receive a check for the credit if he or she has little income tax liability. For example, if a first-time home buyer is eligible for a tax credit of $8,000 but is liable for $4,000 in income tax, she can still receive a check for the remaining $4,000!

Higher Income Caps

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to  $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

Maximum Purchase Price

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

FAQ

Question: Existing homeowner credit: Must the new house cost more than the old house?
Answer: No. Thus, for example, individuals who move from a high cost area to a lower cost area who meet all eligibility requirements will qualify for the $6500 credit.

Question: I am an existing homeowner. On October 25, 2009, I signed a contract to purchase a new home. I have lived in my current home for more than 5 consecutive years and am within the new income limits. I will go to settlement on November 20. If President Obama has signed the bill by the time I go to settlement, will I qualify for the new $6500 tax credit?
Answer: Yes. The existing homeowner credit goes into effect for purchases after the date of enactment (11/06/2009). There is no reference to the date of contract for the new credit. The provision looks solely to the date of purchase, which is generally the date of settlement.

Question: I am a first time home buyer but was not within the prior income limits at the time I entered into my contract to purchase on October 30, 2009. I will be covered, however, by the new income limits. If the new rules have been signed into law by the time I go to settlement, will I be eligible for a credit?
Answer: Yes. The new income limitations go into effect as soon as the President has signed it – which is today, 11/06/2009. The income limit and other eligibility rules will look to your status as of the date of purchase, which is the settlement date. So if the new rules have been signed when you go to settlement, you should be eligible for the credit (or a portion of the credit if you’re within the phaseout range).

Question: I am an eligible existing homeowner. I have a fair amount of equity in my home. I have found a home with a nonnegotiable price of $825,000. Will I be able to use any of the $6500 tax credit?
Answer: No. The $800,000 cap on the cost of the purchased home is firm at $800,000. Any amount above $800,000 makes the home ineligible for any portion of the credit. The $800,000 is an absolute ceiling.

Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?
Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is “consecutive.” As long as he lived in that house for 5 years straight what he did since 3 years doesn’t impact eligibility.

Question: I am an eligible first time home buyer. I entered into a contract to purchase on November 1, 2009. Do I have to go to closing before December 1? How does the extension date affect me?
Answer: You do not have to close before December 1. It will be as if the Nov 30 date had never existed. Therefore, so long as the contract settles before April 30 – or July 1, worst case – the buyer will be eligible for the credit.

As always, the disclaimer must follow that I am neither an attorney or a CPA, so please consult with the appropriate experts regarding your individual situation BEFORE making any financial decisions. In other words, the foregoing information is deemed reliable, but not guaranteed.

My reason for posting this now is to emphasize the time frame. If you are wanting to take advantage of this $8,000 gift from our federal government, then you need to have your dream home under contract by mid-October. Anything later, and you run the risk of the transaction not closing/recording by the November 30th deadline. And at this moment, there is no grace period or extension. Just wanted you to be aware.