Question: We are looking to buy a bigger home and we have heard that there is now a tax credit program for move-up homebuyers in addition to the one for first-time buyers. How does that work?
Answer: You are correct, the popular first-time home buyer tax credit from last year has been extended into this spring and the good news is that even people like you who already own a home can now qualify for a tax credit if you buy.
First, let me tell you that there is a deadline for both tax credit programs, so you’ll need to move fairly fast. You must have the house you want to buy under contract by April 30. That means that the offer has to be signed all around as we say in the real estate business. The sellers must accept and sign off on your offer before the April 30 deadline or you don’t qualify. You can’t simply make an offer by the deadline, it must be a done deal.
The next deadline is the closing date on the home purchase. You must close the deal by June 30. That may sound like a long time, but the mortgage business is moving slowly these days because several new federal rules went into effect at the beginning of this year and they are causing headaches for all the loan officers and mortgage companies trying to figure them out. You should get pre-approved for a mortgage before you even start looking for a home because that will speed up the process and ensure that your loan closes within the deadline. A pre-approval means that you fill out a loan application, have your credit checked and provide all the income and financial documentation required to approved for a mortgage. Once you are pre-approved, all that remains to be done is to order the appraisal and title insurance on the home you are buying.
If you meet the deadlines above, you can get a tax credit of $8,000 if you are a first-time buyer or $6,500 if you are a move up buyer. Now keep in mind that a tax credit is a direct dollar-for-dollar reduction of your income tax bill, unlike a tax deduction which only reduces the total amount of your taxable income, so this is a great deal.
Here are some other key points to know about the tax-credit program:
Buyers can elect to claim the tax credit on either their 2009 or their 2010 federal income tax return, whichever provides the most benefit to them.
The home can be a manufactured home that is permanently attached to land owned or leased by the homeowner. However, many mortgage lenders will not make a loan on a manufactured home these days.
The home can not be purchased from a close relative, including a parent, spouse, child, grandparent or grandchild.
Buyers who claim the credit in 2009 can’t file their tax returns electronically because the Internal Revenue Service hasn’t put the required forms online. The wait for a refund is three or four months.
That are other rules and restrictions such as maximum income restrictions, so contact a loan officer at a local bank or mortgage company to see if you qualify.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206, or e-mail him at firstname.lastname@example.org.