11/15/09; Hartford Courant, By Kenneth R. Harney - Take a close look at the new $6,500 federal tax credit for "move up" homebuyers that passed the Senate and House last week. It's been getting 2nd billing to the $8,000 credit for first-time purchasers - now extended by Congress through next June 30. But the $6,500 credit for current homeowners just might have your name on it.
How does it work? When will it be available?
First things first: The new credit took effect Nov. 6, the day President Obama signed the legislation creating it. This means that if you fit the key criteria -
That could be next week, next month or next Spring. There is no "move up" requirement. In fact, homeowners who plan to downsize into a smaller dwelling may prove to be significant users of the credit, along with people who are relocating because of job changes.
If you fit the criteria and are considering buying another house, you might want to speed up the process and sign a contract by April 30 and close by the June 30 expiration date. Think of it this way: If the government is willing to give you $6,500 to act a little faster than you had originally planned, why not?
Some other key features of the $6,500 credit:
• Whatever you intend to purchase, the house cannot cost more than $800,000.
• The replacement house must become your main home. There is no requirement in the legislation that you sell your current home. You could rent it out, turn it into a second home or list it for sale later in 2010, when prices might be higher. But if you plan to retain it, make sure you move into the new house on the day you close so there is no question it was your principal residence at that time.
• Like the first-time buyer credit, the $6,500 version covers a range of dwelling types. These include newly constructed or existing single-family homes, condominiums, manufactured or mobile homes, and boats that function as your principal residence. You cannot claim the credit if you are buying a second home or an investment property.
• The IRS is required by Congress to scrutinize claims for credits — both the $6,500 and the $8,000 — more closely in the coming months than it did earlier in 2009. This is because investigators have documented significant instances of fraud — supposed "homebuyers" who were actually as young as 4, and bogus "sales" that were fabricated. Investigators also found numerous technical violations, such as purchase transactions among immediate family members, which are prohibited.
The revised rules require taxpayers to submit copies of their settlement statements (HUD-1 forms), along with their requests for credits using IRS Form 5405. Congress' new rules also prohibit individuals younger than 18 or who are counted as dependents on another taxpayer's filings from claiming the credit.
• Homebuyers in 2009 - those who go to closing after Nov. 6 but no later than Dec. 31 - can claim the $6,500 credit on their 2009 federal returns or amend their 2008 returns. Similarly, eligible purchasers in 2010 will be able to file for the credit on their 2009 or 2010 returns. Talk to your tax adviser on timing decisions, which may be affected by your income in a given year.
• If you aren't sure if you can make the deadlines established for the new credit — a binding contract by next April 30 and a settlement by June 30 — do not assume that Congress will provide another extension. All the political and budgetary signs point the other way, and some of the primary authors of the credit insist that this is it, no more extensions next year. Take them at their word.
For an excellent consumer resource with FAQs on both the $6,500 and the $8,000 extended credits, go to www.federalhousingtaxcredit.com, which is sponsored by the National Association of Home Builders.
• Contact Kenneth R. Harney at kenharney@earthlink.net. Copyright © 2009, The Hartford Courant