New homebuyer tax credit boon for boomers

NEW YORK (11/16/09)--The new and improved Extended Home Buyer Tax Credit--signed into law Nov. 6--is welcome relief to more than just first-time home buyers. It may be a windfall for boomers or retirees thinking of downsizing (Forbes.com Nov. 6).

The previous $8,000 tax credit was available only to first-time home buyers and to anyone who hadn't been a homeowner during the three years before closing on a new house. Now, longtime homeowners can get a tax credit of up to $6,500, opening the door for anyone thinking of trading down--or up--or moving to a different locale for their retirement years.

Whether you're buying your first house or downsizing, understand the rules:

Deadlines. To claim either the $8,000 or $6,500 version of the tax credit, you're required to close on the new house--or be locked into a contract to close--before May 1, 2010. Closing must occur before July 1, 2010 (Bankrate.com Nov. 9).

Maximum allowable credit. For first-time home buyers, it's $8,000. For current homeowners, it's $6,500. The allowable tax credit amounts to 10% of the sale price, so if the purchase price is just $75,000, the tax credit would be $7,500.

Threshold. If your house sells for more than $800,000, you won't qualify for the tax credit.

Purchase dates. You must purchase the house between Nov. 7 and April 30, 2010.

Income limits. Single individuals with modified adjusted gross income (MAGI) of up to $125,000 can qualify for the full credit, up from $75,000 under the old law. For couples filing jointly, the full credit is available for MAGI of up to $225,000--previously $150,000. Above those amounts, there's a phase-out over the next $20,000.

Eligible properties. The Extended Home Buyer Tax Credit can be applied to primary residences, including single-family houses, condominiums, townhomes, and co-ops.

Size and price requirements. There are none. Your new house doesn't have to be bigger or more expensive than the old one. And, you don't have to sell your old house to claim a buyer's credit.

Paperwork. You're required to attach a copy of the new house's settlement statement to the federal tax return for the year of purchase. This proof of purchase is intended to cut down on fraud and questionable tax accounting associated with the previous tax credit legislation.

Flippers. If you move within 36 months after the new purchase, you may have to pay back the credit.

Military personnel who serve outside the U.S. for at least 90 days in 2009 or 2010 get an extra year to claim the credit. Any servicemember who's forced to sell a house because of a military service assignment won't be required to pay back the credit.

Finally, be on the lookout for tax fraud. If anyone in the transaction advises you to conceal information from your lender, walk away and cease all communication with that individual.