Thursday, November 12, 2009

Source:USA Today Sandra Block

Your real estate agent isn't returning your calls, your bank wants your income tax returns for the last 15 years, and you're getting some weird vibes from the people who live next door to the house you're trying to buy.

These home-buying potholes won't prevent you from taking advantage of the $8,000 first-time home-buyer's credit, so relax. A bill signed into law Friday by President Obama extends the credit, originally scheduled to expire Nov. 30, until next spring. That gives you plenty of time to Google the neighbors before closing the deal.

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And that's not all. The legislation also expands the credit, making it available to some home buyers who already own a home but would like to trade up to a nicer place.

The expanded tax credit was included in legislation that extends unemployment benefits by at least 14 weeks in all 50 states. Jobless workers in states with high unemployment rates are eligible for an extension of up to 20 weeks. On Friday, the government announced that the unemployment rate exceeded 10% for the first time since 1983.

Here's who stands to benefit from the expanded home-buyer's credit:

•First-time home buyers. The law defines "first-time home buyer" as someone who hasn't owned a home in the three years before the purchase. If your spouse owned a home in that time frame, you're not eligible. So, those eligible can claim a tax credit for 10% of the purchase price, up to a maximum credit of $8,000. The credit is refundable, which means that if you owe less than $8,000 in taxes, you'll receive a refund for the difference. The credit is not available for home purchases that exceed $800,000.

You can claim the credit if you sign a sales contract before May 1, 2010, and close before July 1. Members of the military who serve extended duty outside the USA have until July 1, 2011, to claim the credit, as long as they sign a contract before May 1, 2011.

The legislation also expands the income cutoffs for the credit. Single home buyers with modified adjusted gross incomes of up to $125,000 qualify for the full credit; those with MAGI of up to $145,000 can claim a reduced credit. For married couples who file joint tax returns, the credit phases out between $225,000 and $245,000. Previously, singles with MAGI of more than $95,000 and married couples with MAGI exceeding $170,000 were ineligible for the credit.

The credit doesn't have to be repaid unless you sell your home within three years.

•Existing homeowners. Home buyers who have lived in their current home for five out of the last eight years qualify for a tax credit of up to $6,500. The deadlines are the same as for first-time home buyers.

The income thresholds for existing homeowners are also the same as those for first-time home buyers. Likewise, existing homeowners can't claim the credit if they purchase a home for more than $800,000.

Your new home must be your principal residence. You can't use the credit to buy a vacation home, says Clint Stretch, managing principal of tax policy for Deloitte Tax.

However, there's nothing in the legislation that requires you to sell your existing home to qualify, says Mark Luscombe, senior tax analyst for tax publisher CCH. You could keep your first home as a vacation home or rental, he says, although that property would no longer qualify for tax breaks associated with a primary residence.

Anti-fraud measures

Last month, Treasury's inspector general for tax administration told Congress that thousands of taxpayers who weren't entitled to the home buyer's credit have claimed it. Some claimed the credit even though they hadn't purchased a home, and others weren't first-time home buyers, the inspector general said. The report also found that 582 taxpayers who were younger than 18 had claimed the credit, including one who was 4.

In response to those disclosures, the legislation contains provisions aimed at reducing fraud, Stretch says. The law prohibits anyone who is listed as a dependent on someone else's return from claiming the credit, and says taxpayers must be at least 18 on the date of the purchase to claim it. Taxpayers also will be required to attach a copy of their settlement agreement to the tax return.

If you fail to attach your settlement agreement to your tax return, Stretch says, the legislation gives the IRS the authority to adjust the amount of your credit without going through an audit.

Sandra Block covers personal finance for USA TODAY. Her Your Money column appears Tuesdays. Click here for an index of Your Money columns. E-mail her at: Follow on Twitter:

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