Refundable Homebuyers Tax Credit

The $6500 home buyer tax credit for existing homeowners who purchase a new home and the extension of the $8000 first time home buyer’s tax credit were signed into law on Friday, November 6, 2009.

The official bill, the Worker, Homeownership, and Business Assistance Act of 2009 was signed into law by President Obama on Friday, after being passed by both houses of Congress earlier in the week.

The newly available $6500 tax credit for existing home buyers who purchase a new home (must be a primary residence) between November 7th, 2009 extends until April 30th, 2010. A home must be under contract by the April 30th deadline to qualify, and closing must be within 60 days, effectively the end of June. Home owners must have lived in their existing house for five consecutive years out of the previous 8 to be eligible.

For 1st time home buyers, the law effectively extends the deadline for the $8000 tax credit, which was set to expire on November 30th, for 5 months, to April 30th 2010. As with the new credit, the house must be under contract by April 30th, and closed on by June 30th to be eligible.

The new law also raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples, which applies to both the $6500 tax credit for existing home owners who purchase a new primary residence, and the $8000 credit for 1st time home buyers. Obviously, this will allow a larger pool of citizens in both categories to participate.

To be eligible, a new home must cost less than $800,000, and the new homeowner must live in the house for 3 or more years (as primary residence) in order to avoid having to pay it back. The tax credit will be able to be claimed on 2009 tax returns, even if the house is purchased in 2010, similar to what was allowed in the original $8000 tax credit program for homebuyers.

Is the $6500 tax credit for existing homebuyers retroactive?

Unfortunately, no.  There was some speculation as the bill was working through Congress as to whether it would be applied retroactively up to some point in the past, but it is not.

Some existing homeowners who recently purchased a new primary residence undoubtedly feel like they are being left out unfairly, but the purpose of the program is to stimulate new sales in the future, not provide people with tax relief or a credit.

I understand the purpose of the law, but if I were a recent homebuyer, I am sure I would be a little angry that I was not eligible because of the timing of my home purchase, which in some cases could be a matter of a few weeks or less, and did not receive the credit.

There are many who are concerned that this is just a subsidy for the real estate market, and does not do much for the economy as a whole. For example, those that take advantage of the new $6500 tax credit for existing home buyers will most likely be putting their existing home on the market, thereby having no net effect on the number of homes purchase overall. (Although I am sure there may be some that would buy a new primary residence and rent out their old home, for example, which seems like would be OK under the new law).