First-Time Homebuyer Tax Credit Extended & Expanded to Cover Homes Bought by Current Homeowners

Latest Updates by Connecticut Real Estate Law Firm

On November 6, 2009, President Obama signed into law legislation that extends the first-time homebuyer tax credit and expands the program, making it available to prospective homebuyers who already own a home. (HR 3548, The Worker, Homeownership, and Business Assistance Act of 2009.)

The termination date for the first-time tax credit program has been extended from December 1, 2009 until May 1, 2010. The taxpayer must enter into a written, binding contract to purchase a home before April 30, 2010, and the closing must occur before July 1, 2010 for the tax credit to apply.  Members of the military who have recently served overseas have a longer timeframe, with a contract deadline of May 1, 2011 and a closing date prior to July 1, 2011, provided they meet certain other requirements. The credit for first-time homebuyers remains at $8,000 per individual, or $4,000 if married and filing separately.

Prospective homebuyers who currently own a home are also eligible for a $6,500 tax credit ($3,250 if married and filing separately) provided they have owned and used the same residence as a principal residence for any five consecutive years during the eight years immediately prior to the purchase of a new principal residence.

The income limitations have also been increased, from $75,000 to $125,000 for single individuals, and from $150,000 to $225,000 for married couples. The credit is phased out for individuals who earn more than these income limitations. The cost of the newly purchased home must not exceed $800,000.

All applicants for the tax credit must be at least 18 years old, and certain transactions between family members are excluded.  Also, a HUD-1 settlement statement must now be attached to the tax return of the person claiming the credit.