SPRINGFIELD, IL – April 6, 2010 – (RealEstateRama) — The popular homebuyer tax credit, which has benefited millions of first-time and move-up buyers purchasing a new home, will soon come to an end. Potential homebuyers need to move quickly if they want to take advantage of the federal tax credit before it expires April 30, 2010.
First-time homebuyers can qualify for up to an $8,000 tax credit while long-time homeowners can qualify for up to a $6,500 tax credit if they buy a replacement home. Both new and repeat buyers must buy, or enter into a binding contract to buy, on or before April 30 and must close on the home by June 30, 2010 in order to claim the tax credit.
“The tax credit has been a great incentive for homebuyers in what was already a strong buyer’s market with low mortgage rates and affordable home prices,” says REALTOR® Mike Onorato, GRI, president of the Illinois Association of REALTORS® and the broker-owner of Onorato Real Estate in Coal City.
The temporary tax credit was part of a federal economic stimulus plan and was most recently expanded and extended last year. The National Association of REALTORS® (NAR) estimates that 4.4 million American households will have taken advantage of the original and extended tax credit by the time it ends.
Some facts about the tax credit:
- It can be used for any single-family home (including condos, co-ops and townhouses) that will be used as a taxpayer’s principal residence. Vacation homes and homes costing more than $800,000 do not qualify.
- The first-time buyer tax credit is equal to 10 percent of the purchase price of the home, up to a maximum of $8,000. For the purposes of the tax credit, a first-time buyer is defined as an individual who has not owned a home in the three years prior to the day of purchase.
- The long-time homeowner tax credit is equal to 10 percent of the purchase price up to $6,500. To qualify, a long-time homeowner 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. According to the Internal Revenue Service, long-time homeowners do NOT have to sell or otherwise dispose of their previous home if they use their replacement home as their principal residence. They also don’t have to own a home at the time of purchase as long as they meet the tax credit requirements.
- There are income limitations. The credit phases out for individual taxpayers with modified adjusted gross income between $125,000 and $145,000 or between $225,000 and $245,000 for joint filers. Those with higher incomes do not qualify.
- The credit does not have to be repaid if the buyer stays in the home for three years or more. If however, the property is sold during the three-year-period, the buyer must repay the full amount of the credit, including any refund received.
- For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return. The credit reduces the taxpayer’s tax bill or increases his or her refund, dollar for dollar. It is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
- The credit is claimed using IRS Form 5405. Taxpayers claiming the homebuyer tax credit must file a paper tax return because of the added documentation requirements.
With just weeks left before the tax credit expires, REALTORS® and their clients in communities throughout Illinois and around the country will be hosting open houses this weekend, April 10-11, as part of the REALTOR® Nationwide Open House Weekend. During the two-day event, potential buyers will get a unique opportunity to tour a variety of listed homes in their area, all in one weekend.
REALTORS® will be available at the open houses to answer questions and provide information to potential homebuyers. Contact your local REALTOR® Association to find open houses near you. More than 33 states including Illinois and neighboring states Wisconsin, Missouri, Indiana and Kentucky are participating in this national event.
Mary Schaefer/Ann Londrigan