Frequently asked questions ...
Q: Who is eligible to claim the $6,500 tax credit?
A: Qualified "move-up" or "repeat" homebuyers purchasing a home are eligible to claim this credit.
A "move-up" homebuyer has owned and lived in their home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law considers the homeownership history of both spouses.
"Repeat" homebuyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.
Q: What types of properties qualify for the tax credit?
A: The replacement home MUST become your primary residence. There is no requirement that you sell your current home. This includes single-family detached homes, attached homes like townhouses and condominiums, manufactured (mobile) homes, and houseboats. The tax credit excludes a second home or investment property.
Note: A principal residence constructed by the homeowner is treated by the tax code as having been "purchased" on the date the owner first occupies the house. In this situation, the date of first occupancy must be after November 6, 2009 and on or before April 30, 2010 (or by June 30, 2010, provided a binding sales contract be in force by April 30, 2010).
Q: What are the income limitations for claiming the tax credit?
A: 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 tax 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.
Q: How is the amount of the tax credit determined?
A: The tax credit is equal to 10% of the home´s purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
Q: What is the deadline in order to qualify for the tax credit?
A: All contracts need to be in effect on or before April 30, 2010, and closed by June 30, 2010?
Q: What is the difference between a tax credit and a tax deduction?
A: A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. For example, if a qualified homebuyer expected, notwithstanding the tax credit, federal income tax liability of $5,000 and had tax withholding of $4,000 for the year, then without the tax credit the taxpayer would owe the IRS $1,000 on April 15th. Suppose now that the taxpayer qualified for the $6,500 homebuyer tax credit. As a result, the taxpayer would receive a check for $5,500 ($6,500 minus the $1,000 owed).That means that a taxpayer who owes $6,500 in income taxes and who receives a $6,500 tax credit would owe nothing to the IRS.
A tax deduction is subtracted from the amount of income that is taxed. Using the same example as above, assume the taxpayer is in the 15% tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer´s tax liability would be reduced by $975 (15% of $6,500), or lowered from $6,500 to $5,525.
The above questions and answers provide basic information about the tax credit. If you have specific questions, we suggest you to consult or lender, a qualified tax advisor, or closing attorney about your unique situation.
