1. $8,000 First-time Home Buyer Tax Credit at a GlanceThe $8,000 tax credit is for first-time home buyers only. For the tax credit program, the IRS defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase.
2. The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
3. The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $8,000.  This applies most often to Atlanta FHA Loans, in my experience.
4. The tax credit applies only to homes priced at $800,000 or less.
5. The tax credit now applies to sales occurring on or after January 1, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, a home purchase completed by June 30, 2010 will qualify.
6. For homes purchased on or after January 1, 2009 and on or before November 6, 2009, the income limits are $75,000 for single taxpayers and $150,000 for married couples filing jointly.
7. For homes purchased after November 6, 2009 and on or before April 30, 2010, single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

The $6,500 Move-Up / Repeat Home Buyer Tax Credit at a Glance

1. To be eligible to claim the tax credit, buyers must have owned and lived in their previous home for five consecutive years out of the last eight years.
2. The tax credit does not have to be repaid unless the home is sold or ceases to be used as the buyer’s principal residence within three years after the initial purchase.
3. The tax credit is equal to 10 percent of the home’s purchase price up to a maximum of $6,500.
4. The tax credit applies only to homes priced at $800,000 or less.
5. The credit is available for homes purchased after November 6, 2009 and on or before April 30, 2010. However, in cases where a binding sales contract is signed by April 30, 2010, the home purchase qualifies provided it is completed by June 30, 2010.
6. Single taxpayers with incomes up to $125,000 and married couples with incomes up to $225,000 qualify for the full tax credit.

Note the previous post about the precipitous drop in New home sales and housing starts.  Well, just the opposite happened with the existing home sales – resales are on the rise.

And, existing home sales are rising quite well:

As you can see, there has been a very nice pick up in home sales compared to this point last year.  Now, a lot of that has to do with the $8000 tax credit for first time home buyers; but anecdotally there is a nice pick up of move-up buyer home sales as well.  And, with the recent introduction of the $6500 tax credit for move-up buyers, that trend should continue as well.

While more homes are moving, prices are dropping in general.  Or, perhaps the opposite is true, that because home prices are so far down, buyers are beginning to come out and explore their options.

Does all of this point to a housing rebound?  Too early to tell if Atlanta will move from a buyer’s market back to a seller’s market in the near future.  A LOT of that will depend on the movement of mortgage interest rates.  And rates are pointing upward, although probably not until late Spring.

So, if you are in the market for a home, my best guess currently is that you should act on that and lock in a rate prior to April, 2010.

To receive the $8000 tax credit, you must be a first time home buyer.  And, as is widely reported, a first time home buyer is anyone who has not owned a home in the past 3 years.  Simple enough.  Right?

Well, no.  My definition of not having owned a home in the past 3 years was simply calendar years.  So if you sold a home in October of 2006, then rented, and are now closing on a new home in November of 2009, then you qualify for the tax credit as a first time home buyer.  And, I was wrong.

Here is an email that I received from a recent client that I helped to finance a home:

I do have some unfortuante news relating to the First Time Homebuyer Credit. The IRS has denied my refund be cause I owned a home for one or two months in 2006. They require 3 full “tax years” to re-qualify. So, even though I qualified as a FTHB for the loan, I did not qualify for the tax refund.    - Will

Turns out, the IRS defines the three years as being three tax filing years, not calendar years.  An important and potentially expensive distinction.  Now, for the $6500 tax credit for move-up buyers, you need to have lived in your home for 5 of the last 8 years.  That seems more cut and dried, and not so open to interpretation.  However, I wonder if you live in the home from December, 2004 to present, if the IRS would interpret that as 5 tax years as well?

I will try to get the answer, and post it here.

Part of the new, expanded first time home buyer tax credit, is not for first time buyers at all.  If you have lived in your home for 5+ years out of the past 8 years, and are now moving, then you will qualify for a $6500 tax credit when you purchase your new home.

The details:

1. Must be a primary residence
2. Max income limits to qualify of $125K single, and $225K for a couple filing jointly (with pro-rated tax credit for $20K above those limits)
3. The home purchased must be under an $800K purchase price to qualify
4. Be under contract by April 30, 2010, and close on that home within 60 days of April 30.