Here are the main points of the tax credit legislation:

-The Timeline: The credit is available for homes purchased on or after November 7, 2009 and before May 1, 2010. The federal income credit can be claimed on one’s individual or joint tax return for the purchase of any single-family home (newly constructed or resale, single-family detached, townhomes or condominiums) between the dates of November 7, 2009 and April 30, 2010. Home purchases subject to a binding sales contract signed before May 1, 2010 will also qualify for the tax credit as long as closing occurs by June 30, 2010.

-Who’s Eligible: The tax credit is now available for first-time home buyers and eligible current homeowners. A first-time home buyer is defined as an individual who has not owned a principal residence during the three-year period prior to the purchase. This law applies for both parties in a married couple; if you haven’t owned a home for three years, but your husband has, then neither one of you can qualify for the tax credit. A qualified current homeowner who wishes to move to a different home (a “move-up” buyer), must have owned and resided in their residence for five consecutive years out of the last eight.

-Salary Requirements: Under the legislation, the income limits to qualify are the same for both first-time home buyers and current homeowners: Single taxpayers with incomes up to $125,000 and married couples with a joint income up to $225,000 qualify for the full tax credit. According to Goldman Sachs, these income limits make almost all first-time home buyers eligible and approximately 70% of current homeowners eligible. Single taxpayers who earn between $125,000 and $145,000, and married couples who earn between $225,000 and $245,000 are eligible to receive a partial credit.

-Credit Amounts: The maximum credit amount for first-time home buyers is $8,000; the maximum credit amount for current homeowners is $6,500. The federal tax credit amounts to 10% of the cost of the home, up to a maximum credit of $8,000 for first-time home buyers and $6,500 for current homeowners. Under the new legislation, a tax credit may only be issued for homes purchased for $800,000 or less.

-Tax Facts: Provided the home-owner stays in the home for three or more years, the tax credit is a true credit and does not need to be repaid. The tax credit is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if you owe no tax or the credit is more than the tax owed. The credit is claimed using Form 5405, which you file with your original or amended tax return. Buyers can claim the credit on their 2009 taxes, even if the home is purchased in 2010, by filing an amended tax return.

-Fraud Prevention: The current tax credit legislation has built-in fraud measures, therefore, anyone claiming the credit must provide documentation to prove that the sale has closed, such as a copy of their HUD-1 Settlement Statement. The law also prevents anyone younger than 18 from claiming the credit.

Courtesy of RISMedia, 1/4/2010

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