Dennis Norman
UPDATE 11/06/09 5:14 p.m. – Thanks to Denis T who was commenting on this post, click here to go to the IRS site with information on the new tax credits.
UPDATE 11/06/09 1:00 p.m. – I just heard that a short while ago President Obama signed the bill into law. IT’S OFFICIAL! So if you are in the market for a home .. Go For It!
UPDATE 11/06/09 9:20 a.m. – Still waiting for President to sign bill…However there have been a ton of inquiries from existing homeowners that are either already under contract to buy a home or getting ready to do so that want to know when the new credit is effective….My opinion (for what its worth) was that the bill goes into effect when the President signs it and after that date is when existing home owners are eligible…Other question is whether the date of purchase is based upon the contract date or closing (settlement) date..My guess was that it was the settlement or closing date because in the new bill you are required to submit the closing statement with your tax return but not the contract. For both issues I was just basing this on my interpretation and was looking for an interpretation of it from someone smarter than me..I found it…just a few minutes ago the National Association of Realtors sent out an email with a link to some FAQ’s on the new credit – included in the FAQ’s was the following question addressing this issue…looks like NAR’s take is the same as mine, let’s hope we’re right:
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 (when the bill is signed). 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.
UPDATE 11/05 5:35 pm – The National Association of REALTORS has prepared an outline that shows the difference between the original tax credit and the new extended and expanded tax credit. I think it is pretty helpful and includes effective dates of the changes. Many of the effective dates are based upon when President Obama signs the bill which may be tomorrow. Click here for NAR outline.
According to Fix Housing First the House of Representatives has just passed the extension and expansion of the home buyer tax credit by a vote of 403-12. Now it goes on to the President for his signature which is expected today or tomorrow.
To read the section of H.R. 3548 that contains the details concerning the first-time home-buyer tax credit click here.
If you care to read the entire bill click here.
I’ll keep you posted as I learn more…
Below is a recap of provisions in the amendment from the National Association of REALTORS(R):
- Credit available for purchases before May 1, 2010. Prospective purchasers with binding contracts in place as of April 30, 2010 will be allowed an additional 60 days to complete the transaction.
- Credit remains at $8000 for first-time purchasers. No change to definition of first-time purchaser.
- New $6500 tax credit for repeat buyers who purchase between December 1, 2009 and May 1, 2010. Repeat buyers must have lived in their homes consecutively for 5 of the previous 8 years.
- Income limits are expanded to $125,000 on a single return and $225,000 on a joint return. Current law $20,000 phase-out retained.
- New anti-fraud limitations are imposed.
Related posts:
Home buyer tax credit extension update; House Passes Bill…On to President for approval
Thanks for sharing
Hey Turk
Glad to hear it, thanks for letting everyone know the thoughts of your CPA…this should be helpful for others in your spot…
Also glad to hear you save $1,000! Send me a nice bottle of Cabernet and we’ll call it even
Take care, Dennis
Thanks again Dennis, I spoke with a CPA earlier today and they agree with you so I moved back my date and saved myself $1,000.
HI Turk
I agree with you, I think you can move your closing date back to 11/21 – below is the info from the IRS site and I think it is clear the higher income restrictions go into effect for purchases AFTER Nov 6th with no mention of Dec 1st at all….of course, I would suggest checking with your tax professional or CPA to be sure, but if it was me I would move my closing date back up to the 21st rather than pay to extend it….
From the IRS Site:
People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.
Hello Dennis,
I was on this forum last week discussing my closing date for my first home (Nov 21st) and the fact that under the new salary criteria – now qualify for the credit.
Based on what was released by the NAR I pushed my closing date out to Dec 1st. It now appears that the data released by the IRS (included further up this thread) conflicts with that and that the new criteria came into effect on Nov 6th, the day it was signed.
Please advise as I can bring my closing date back to Nov 21st if I want and it will save me the money that the Seller insisted I pay to extend.
Thanks again in advance for your advice,
Eric.
OK, for those of you who are disgruntled because you missed out on the credit, or it doesn’t apply to your set of circumstances, or for those that have expressed their disapproval of the idea of the tax credits, I just published an article showing the other side of the tax credit argument by Ted Gayer of the Brookings Institute…Ted cites many reasons for why he thinks the credit is a bad idea and actually makes some interesting points…As readers I’m sure know, I am all for the credits even though I do believe they are just a “shot in the arm” and not a long-term fix, but in fairness I like to present the other side as well…If you wish to read it, it is the latest post on the blog…direct link to article is:
http://realestateconsumernews.com/financing/and-now-for-the-other-side-of-the-coin-on-the-home-buyer-tax-credit/
Dennis, I am an H1B visa holder – will I qualify for the $8000 tax credit if I buy a condo now? This will be the first home I will own. Thanks much.
What about those of us who purchased a house in 2006?
Text of the law regarding existing homebuyers. Does not state that sale of existing house is required, just that you purchase a new residence.
(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of an individual (and, if married, such individual’s spouse) who has owned and used the same residence as such individual’s principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.
And the difference in credit amount for existing homeowners:
(D) SPECIAL RULE FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of a taxpayer to whom a credit under subsection (a) is allowed by reason of subsection (c)(6), subparagraphs (A), (B), and (C) shall be applied by substituting `$6,500′ for `$8,000′ and `$3,250′ for `$4,000′.
Dennis,
I just read an article on bankrate.com, that says the buyer has to sell their current house in order to get the credit. Is that right?
“…A $6,500 credit also will be offered to existing homeowners who sell their current property and purchase a primary residence that costs $800,000 or less…”
http://www.bankrate.com/finance/mortgages/homebuyer-tax-credit-extended-and-expanded.aspx
This would really stink, because we own an live in a duplex that has basically deemed un-sellable in this market by our realtor. We recently took it off the market after he gave up on us. So now we were planning on buying a new place and renting both floors out, so we won’t have to take a $50-70K loss on the sale of the duplex.
Is bankrate wrong on this point, and do you have any reference to prove it?
Andy
I agree with your interpretation…assuming you meet the rest of the requirements, I think you are eligible for the credit…
Dennis, Thanks so much for your insight! Have a great evening.
My wife and I sold our residence back in December. We lived in it for 5 1/2 consecutive years and are currently in a rental and looking to purchase a new home during the first half of 2010. We purchased our previous home back in June of 2003. So, would we qualify for the $6500 credit even though we currently don’t own a home but did for 5 1/2 years within the 8 year period? Thanks!
Glad to hear it Jen…Good luck, Dennis
Hi Jen,
Thanks for you comment…The new bill states you have to have lived in your prior home for 5 consecutive years of the prior 8 years….so assuming you were there for 5 years prior to selling in July 2009 and you meet the rest of the requirements, I think you are good to go….
Yes, we had lived in our townhome for 8 years so we’ve got the five year thing covered. Thanks for the information.
We sold our townhome this past July (2009) and have been living with relatives while we decided what to do-either build a home or find an existing one that met our specifications. We have FINALLY decided to build. It will be compelted by April 2010 and we plan to move in by April 30, 2010. The thing that I’m unclear on is the “break in time” for the past 4 1/2 months that we haven’t purchased a new one in. Our income fits within the limits. Will we qualify for the $6500 credit? Thanks!
Nate, I didn’t have a chance to run through all the comments on this post to look for a prior response of mine (it may be on one of the other updats posts or may be at http://www.RealEstateIndustryNews.com) but I remember answering this one for someone before and I pasted a section of the IRS site which dealt with it…my recollection is that the “counting” on the 5 year eligibility goes up until you close on the purchase of your new home…so provided you hit 5 years before closign you should be ok..
Of course check with your tax professional or CPA to be sure…
Hi Nate,
THanks for your comment..I’m not an attorney nor CPA so this is neither legal nor tax advice, however I have been following the credit very closely…Here’s my take on your questinos…
1. If you enter into a binding contract to purchase a house by April 30, 2010 you have until June 30th to close on the purcahse.
2. It appears the closing of the sale is what constitutes a “purcahse”..However you cannot claim the credits until you have closed and you need to submit a copy of the settlement statement with your tax return…if you have already filed your return by the time you close you will file an amended return after closing
3. I have not went back and re-read the original bill with regard to paying back the money if you don’t stay in the home, but 3 years does sound correct…
Thanks Dennis. That all makes sense, and after rereading some info,it looks like you are right on those points.
One other question though…Since my 5 year anniversary for my current residence is on April 23rd, do I have to wait until after that date before getting signing a purchase agreement, or would I only have to wait until after that date to “close” on the property?
I will reach the 5 year mark on April 23rd. If we sign a purchase agreement prior to that for say May 30th, how can I get the credit when the tax filing deadline is April 15th?
Also, is a “closing” required to get the credit by the time I file for my 2009 taxes (on 4-15-10), or is just the Purchase agreement required?
I also read on one website that the new home must be lived in for 3 years, or the credit must be repaid. I haven’t read that anywhere else. Has this been verified or falsified?
haha…unbelievable. I am closing in the Nov 20th and missing the 5 year deadline by 9 days (Nov 29th). What a joke. I can’t believe they didn’t put pro-ration language in the bill. What the f is the difference between living in your house 4 years 355 days or 5 years. Our glorious government at work.
I’m not sure we know yet how precise the “5 years” has to be since the new tax forms aren’t out yet. But why don’t you move your closing to Nov. 30th just to be safe?
Yes, I am hoping against hope that common sense will prevail when the IRS forms come out – but I doubt it. I tried to move the closing but it was a no go since there is a long string of buying and selling plans already in motion and it is difficult for everyone to change. Of course I was being accommodating on the front end for a quick close as our buyers wanted to get the 8k credit. That’s what I get for being nice huh
It is all good though. i didn’t expect the $6.5k in the first place and was happy to sell our house and find a nice new one. But that extra money sure would have been useful…
I did find in information provided by the IRS that the 5 year period runs up until the day you close on the purchase of your new residence….so if you hit the 5 year mark by that date you are good…if you are short I think you are going to miss the credit…I am pretty confident being 1 day shy of 5 years is for all and intents and purposes no better than being 1 year shy of 5 years…
Roger,
Provided you meet the income, price and other qualifications I would think you qualify…you definitely have fulfilled the requirement to live 5 years in your present residence..
Dennis thank you for being on this web site. It is amazing to read the various scenarios in the real estate arena. It is your insight that helps others manage their complex home buys. Thank you also for you quick responses.
I have lived in my present residence for 17 years. We are right sizing and plane to close on a new residence after Dec 1, 2009. Do I qualify for the $6500 tax credit?
I keep seeing $6500 credit when you buy a NEW home with other requirements met. Does this mean the bouse has to be built “New” and just another home?
No, a new home as opposed to your old home. It does not have to be new construction.
Never fails. It’s unfortunate that those families, ours included, that purchased a foreclosed home and fixed them up (for big dollars), lose out again on any sort of assistance. We’re also helping the economy! I think this legislation is going to do more to irritate all that purchased in 2009 than make happy those that happen to purchase a house in the next few months.
if i owned A HOME for the past eight years, one from oct of 11/02 through 9/05 then our current home from 9/05 – present. Our plan to sell this one and purchase another in 01/10. do will fit in the five of eight years prevision being that it is our primary residence?
The way the IRS statement reads, you have to have lived in the same house for 5 (consecutive) of the past 8 years:
“They must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.”
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
Hello-
I sold my old house that I have lived in for over 5 and a half years today and also closed on my bran new house today (11/6/2009) at 10:30 Central Time today (11/6/2009). I meet all of the requirements, so do I qualify for the 6500 dollar credit?
It would have really been good if you had seen this bill coming and postponed your closing to Monday. I think you’ll have to check with someone more authoritative, but it sounds like the closings have to be after Nov. 6th.
Am I eligible? PLEASE HELP!
Our situation:
1. We bought a lot in May 09
2. We had a purchase agreement in Oct 09
3. Currently building the house. (scheduled to finish in the end of Mar 2010.)
4. We have lived in current house since 2000.
5. Our combined income is 120K.
6. The newly constructing home will be our primary residence.
My concern is that although we signed on the purchase agreement to build new home but has not been closed.( House is in process of building.)
Could anyone tell us if we are eligible for $6500?
Sara, I think you will be eligible. See the second question and answer here…
http://weblogs.baltimoresun.com/business/consuminginterests/blog/2009/02/firsttime_homebuyer_credit_qa.html
We were in the same situation, but unfortunately, we started last year and moved in 34 days ago.
Thank you Jason.
The link was for 1st time home buyer Q&A, but as far as the situation of “construction of new home,” it is the same I suppose.
So the key word is ” 1st OCCUPIED DATE”
Does this mean the MOVE IN DATE?
I am a little bit confused with the defenition of:
PURCHASE DATE, COLING DATE, 1st OCCUPIED DATE.
Can anyone clarify the defenition?
Oops, I ment ” CLOSING DATE” and not COLING DATE…
I am a foreigner living in US. sorry for my English mistakes…
Sara, what you file with your taxes is the settlement (closing) statement. So just be sure you close by April 30th (although you probably actually have until June 30th).
Sara – Same boat as you. I am still a little confused though….Does anyone know if the settlement date would be considered the date of the closing of the construction loan? or is there another settlement that occurs when we occupy the house in March? Help…I need to know if I can upgrade my appliances
I’m confused too. The financing we got was a “construction-to-perm”. We got a settlement statement when we signed paperwork back in November 2008. Then the construction loan is supposed to automatically convert to a mortgage at the end of the construction term (it’s being finalized now). So, should I get another settlement statement with a later date of when it converted to a mortgage? Or is the one I got last year the only one I will see? How else can you prove to the IRS when you took occupancy?
Trickett,
Your situation is a challenging one…I am pretty confident that the “purchase” date is equal to the date of closing on purchase of the home…this is supported by the fact that the IRS requires a copy of the settlement statement to be filed with your tax return when claiming the credit, but not the contract…However in your situation where you are building a new house this is not so clear…Since the purpose of the credit is to help stimulate sales and reduce the inventory of homes for sale it would make sense that the credit would not be offered for a new custom home, but I have not seen anything in the bill that would indicate this…
I think your question is going to be one for a CPA or tax attorney to interpret..
Good luck
Another link:
http://www.federalhousingtaxcredit.com/glance.php
RJ, unfortunately I believe that to be the case….if you want to do the “glass is half full” thing then maybe find comfort in knowing you snagged a good deal before there was a spike in market activity due to the credit extension possibly making sellers more aggressive and harder to deal with….
Dennis Norman
I agree with you , people feel frustated knowing that they lost the apportunity , however this is all myth , no one really can tell for sire if you really lost or you may have gained because you closed before market started picking up.
I hope people here on this forum understand this and dont get too upset that they may have missed the apportunity by buying soon
Regards
This is unbelievable. We closed on a property on Nov 4th 2009.
So if we meet all requirements for the long-time homeowner credit, but closed prior to November 6th the law will not be retroactive and we are going to get screwed out of the credit?
The new law raises the income limits for homes purchased after Nov. 6, 2009. The credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. The existing MAGI phase-outs of $75,000 to $95,000 or $150,000 to $170,000 for joint filers still apply to purchases on or before Nov. 6, 2009.
Kevin, earlier today or yesterday I posted the section of the bill that covered this and it did indicate that the income level change was at the time of enactment..so today…take care,
If I’m reading the IRS posting correct, they’re using the Nov 6 date as the effective date for the new adjusted income level. If that’s the case, does that mean that Nov 6 is the “date of enactment” and the magic number we’re all shooting for instead of Dec 1?
I noticed that, too, Kevin. If that is Nov. 6th, then purchases (closings) after Nov. 6th should qualify as well.
From IRS web-site: http://www.irs.gov/newsroom/article/0,,id=204671,00.html
Denis, thanks for posting the IRS link…I checked it out and it looks consistent with everything we have discussed here which is good…unfortunately no clarification on the timing of the purchase for existing home owners but I think we have already beat that one to death..
In the same boat…closing Nov. 20
Thanks, Dennis for your earlier answer to my question! We have closing scheduled for Nov. 20th, and I’ll rest easier when I see the IRS regulations that say the rules go in effect after today. However, I am not optimistic about them accomplishing it by our closing date. So the big question is, do we postpone our closing until Dec. 1, pay penalties, and be safe? I guess everyone with a Nov. closing date is asking that question!
OK, here is the language straight from the bill about the existing homeowner credit…it says you have to have occupied your existing residence for 5 years and that it ends on the date of the purchase of your new residence…doesn’t say anthing about having to sell your prior residence…(ignore the numbers, they are line numbers in the bill)
‘‘(6) EXCEPTION FOR LONG-TIME RESIDENTS OF
12 SAME PRINCIPAL RESIDENCE.—In the case of an indi13
vidual (and, if married, such individual’s spouse)
14 who has owned and used the same residence as such
15 individual’s principal residence for any 5-consecutive16
year period during the 8-year period ending on the
17 date of the purchase of a subsequent principal resi18
dence, such individual shall be treated as a first-time
19 homebuyer for purposes of this section with respect to
20 the purchase of such subsequent residence.’’.
I agree with everything that you have said before and my interpretation of the bill is in line with yours. That NAR FAQ just kind of threw me for a loop regarding the requirement. I hope we get some clarification soon.
Or do we have to sell our current house to qualify for the $6500 credit.
I’m in the same situation as xzll and elizabeth. According to this NAR FAQ (http://realestateconsumernews.com/nar_chart_tax_credit_extension.pdf) it says for current homeowner definition of elgibility,
Must have used the home
sold or being sold as a
principal residence
consecutively for 5 of the
previous 8 years
So which is it??? Can we rent/lease out our current house and move into the new one we’re buying. Thanks.
But if my current home is no longer my primary residence, because I am renting it out doesn’t that qualify? I am buying a home and renting my current one.
But you have fulfilled the requirement of owning and occupying the residence for 5 of the prior 8 years..if you are going to buy a new home and occupy it as your residence you will no longer be a resident of the prior one no matter whether you sold it or leased it..
Sorry I wasn’t clear on that.
I am living in my home right now and have been for 25 years. I am buying a new home (well not new construction) and will close on Nov.20. I will then rent out my current home that I am living in.
Dear xzll,
It says it has to be Primary Residence, if you buy another one while renting first you may not be able to qualify.
Yes, I will use the new one as primary residence. Is there anywhere in the bill mentioned that I have to sell the old one?
xzll, I agree with Denis T, I don’t see anything that says you have to sell your prior residence (in fact it seems it would be better for the market for you to buy another and not sell one) so as long as the new one is your primary residence and you meet the other qualifications I think you are good to go…
I placed a call to my Congresswoman (her office in DC) and they were not even able to tell me whether the home purchase should take place AFTER December 1st, 2009 to qualify for $6,500 credit (provided you sold your house and lived in it for 5 years). I am left to wonder what happens to all the folks with closings schduled after today (when the Bill was signed) until December 1st, 2009, provided of course they meet all other requirements.
Denis,
The bill is brand new and somewhat complicated since it makes changes to an IRS regulation, which is a complicated enough matter to figure out..it will probably take a while for even the CPA’s and attorney’s to sort through it all and figure the details out…however, the way the bill reads it certainly seems that the existing home buyer tax credit went into effect today, for houses purchased after today, and the consensus is that “purchased” means closed…The National Association of Realtors info I published definitely agrees with this thought with regard to when a purchase occurs and seemed to agree with the timing but wasn’t clear…There is no mention of Dec 1 in the bill at all with regard to the existing home owner credit…
Once again, consult your tax professional before doing anything
I had the same question as elizabeth. Do we have to sell our current home and buy a new one to qualify for the $6500 credit? I didn’t see anywhere said this, but just want to make sure, because the current market is soften, so we’d rather renting out our current one instead of losing a lot of money by selling it.
Ok, really confused here. My parents are going to settlement on a new home on Nov 18th. They have lived in their current home for 40+ years. Will they qualify for the $6500 credit?
Correct me if I am wrong, but it is not a $6,500 tax credit but 10% of the purchase price but not exceeding $6,500.
Steve, you are correct…
I am confused here, 10% of the purchase price? where it says this? I think everyone thinks it’s a fixed amount of $6500 no matter you buy a 300K or 500K house, as long as it does not exceed $800K, you will get $6500, right?
Unless you are looking at property less than $65,000, then you will get $6,500 (for existing homeowners).
Mike is right , moreover where do you find a house below 65,000? if any one find a decent home in decent neighborhood below 65000, let me know I will better move there
Hi, anyone know the answer to this?
We closed on our first home on Oct 30. We did not fit into the income limits for the first bill, but we do fit for the second bill that Obama just signed on Nov 6.
Are we going to be eligible for the credit? Does the new bill apply to all purchases in 2009 or just purchases after Nov 6 2009?
No your in the same situation as myself and a lot of other people that have contribued to the economy. They seem to think that $8000 and $6500 is going to persuade people to buy a home. If people are solely buying on these conditions they shouldn’t be buying anyway. This is more less an award for people and we missed out!
I have lived in my current home for the past 6 years. We will be closing on a new home in early December. We will be renting the original house. Do we still qualify since we are not selling our other house? our new house will be our prinipal residence. thanks
HI Elizabeth;
I think you will qualify, the bill discusses how long you must have owned and occupied your prior residence but makes no mention of selling it…so as long as your new home is going to be your residence I think you are good..
Of course, consult your tax professional or CPA first to be sure..
I am in the process of building a new home. We currently have been living in a mobile home (trailer) for the past 10 years. Because the banks do not consider a mobile home a home I have never had a mortgage. I learned through my banker and tax man that I would NOT qualify for the $8000 credit because I have lived in my primary home for more that three years. If banks do not consider it a home then why does the government? Would I qualify for the $6500 credit? If so when do I have to close by? We fit in the income guide lines.
Hi,
We are closing on the house on Nov 6th. We do fit in the extended income limit. Do we qualify for the credit if the house closes on NOv 6?
I would have recommended to push the closing till Monday because of the language in Bill. Would be better not to take risk
UPDATE 11/06/09 1:00 p.m. – I just heard that a short while ago President Obama signed the bill into law. IT’S OFFICIAL!
I’m trying to understand when the credit can be claimed and what year’s income applies.
With the existing rules, a purchase in 2009 could be claimed on an amended 2008 return and be based on 2008 income.
We meet the existing homeowner requirements (lived in current house for 9 years), but don’t meet income requirements for tax year 2009 (but met in 2008 and probably will in 2010).
If we don’t meet the income limits in 2009 due to an abnormal income this year, can we still claim it in 2008 (when 2008 income would meet the limits), or should we push off closing to early 2010 (when 2010 income would meet the limits)?
We’ve been pushing to get closing done before the end of the year, but for $6500 we may push it off to 2010…
Thanks,
Mike
Found lots of conflicting info on the web. No one seemed to be able to answer this question, so I went through the three laws passed and made the amendments to see what the final wording of the law is. In the end, purchases look like they can be applied to the prior year or current year, whichever is most tax advantageous…
(g) Election To Treat Purchase in Prior Year- In the case of a purchase of a principal residence after December 31, 2008, a taxpayer may elect to treat such purchase as made on December 31 of the calendar year preceding such purchase for purposes of this section (other than subsections (c), (f)(4)(D), and (h)).