Homebuyer Credit Critical Changes
Rules change when president signs the law
By Kaye A. Thomas
Posted November 5, 2009
Updated November 6, 2009
New restrictions, but also new liberalizations.
The Senate has passed a law extending the homebuyer credit, which provides a subsidy of up to $8,000 on a qualifying purchase of a home, through April, 2010. The law includes other changes to the credit, including some that apply to purchases made after the date of enactment — in other words, after the date President Obama signs the law. As of this writing we don't know when the signing will take place, though it could be within a few days. Because of these changes, some people will save thousands of dollars in taxes if they can close a purchase on or before the date of enactment, but others will receive the credit only if they can postpone their closing until after that date.
Update: It has been reported that President Obama is expected to sign the bill November 6, making that date the last day on which it is possible to buy a home under the old rules.
New restrictions
Some of the changes will prevent certain people from claiming the credit, but only if the purchase occurs after the date President Obama signs the new law. People affected by these rules may want to close a purchase before the new law takes effect:
Dependents. The purchaser cannot be someone who can be claimed by another taxpayer as a dependent. Note that failing to claim a dependent who could be claimed will not qualify that person for the credit.
Minors. The purchaser must be at least 18 years of age, unless married to someone who is at least 18 years of age.
In-laws. Previous law disallowed the credit on purchases from the buyer's relatives. The new law also disallows it on purchases from relatives of the buyer's spouse.
Price of home. Previous law did not limit the price of the home, but under the new law the credit is not available when the purchase price of the residence exceeds $800,000.
More liberal rules
The new law also includes changes that will make the credit available to some people who would not otherwise be able to claim it, but only if the purchase occurs after the date President Obama signs the new law. People affected by these rules may want to postpone a closing until the law takes effect:
Purchase by existing owner. Previous law allowed the credit only if the purchaser had not owned a home in the preceding three years. Under the new law, a credit of up to $6,500 (not the $8,000 credit otherwise available) can be claimed by a purchaser who has owned and used the same residence as his or her principal residence for any five-consecutive-year period during the eight-year period ending on the date of purchase, or a purchaser married to an individual who meets this requirement.
Income limit. Under previous law the credit begins to phase out when modified adjusted gross income exceeds $75,000 (or $150,000 on a joint return). The new law begins to phase out the credit when MAGI exceeds $125,000 (or $225,000 on a joint return). Note that the new limit for a joint return is not double the limit for other returns. The range over which the credit phases out remains $20,000.
