Many people want clarification on exactly who is eligible for the new $6,500 homebuyer tax credit.  Read on to see whether or not you qualify.

Here are two more recent posts on the matter:

• Tax Credits for Home Buyers and Homeowners
• First-Time Homebuyer Credit – 2009 Returns must be filed on Paper – No eFile

The measure deals primarily with extending and expanding the homebuyer tax credit along with unemployment benefits and business tax credits.

A question looming large on the minds of a lot of many people is whether the $6,500 homebuyer tax credit will be retroactive or not. Meaning, if you purchased your home before the inception of the tax credits, are you eligible for a credit?

Unless Congress has a sweeping change of heart, to the discouragement of many American home owners the answer is NO.  As I mentioned in an article earlier, the wording in the bill goes like this, “shall apply to residences purchased after the date of the enactment of this Act.”  According to the bill the credit is being expanded to include a $6,500 tax credit to non-first time home buyers who purchase between November 7th, 2009 and May 1st, 2010.

So Exactly WHO gets the $6,500 credit?

• Non-first time home buyers who have lived in their previous residence for at least five out of the last eight years but are selling that home and buying a new home by May 1st, 2010.  The new home must be used as a primary residence.

And Exactly WHO gets the $8,000 credit?

• First time home buyers who purchase a home before May 1st, 2010.  The new home must be used as a primary residence.

Please note that… any home owner who sells the newly purchased home or ceases to use it as a primary residence within three years of the purchase date must repay the credit.  And in both situations the yearly income limits are $125,000 for individuals and $225,000 for couples.

Why Not Make the Homebuyer Tax Credit Retroactive?

When considered from the perspective of why the legislation was enacted in the first place, not extending the tax credit to existing home owners makes perfect sense.  They originally extended the credits to new buyers with the purpose of stimulating the housing market.  Simply passing the credit on to everyone who has purchased in the last five years would be disastrous and is quite unfeasible.

Will This Stimulate the Economy?

Ultimately the decision to extend these credits was made in order to further stimulate the housing market by encouraging existing home owners to sell their current residence and buy again.  Will this have the effect they are hoping for?  What do you think?

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DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.

photo credit to Infrogmation

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President Barak Obama is poised to sign a measure today that will extend and expand the first time home buyer tax credit, extent federal unemployment relief, and expand upon available business loss deductions.

The U.S. Senate anonymously approved the measure on Wednesday and the U.S. House of Representatives followed suit on Thursday to pass the extensions by a vote of 403-12.

Is it Retroactive?

**UPDATE** For clarification on exactly who is eligible, read:  Is The $6,500 Homebuyer Tax Credit Retroactive for Existing Non-First Time Home Buyers?

First thing’s first… is this bill retroactive?  A lot of people want to know!

As far as I can tell from the research I have done, the bill is NOT retroactive.  The wording in the amended H.R.3548 goes like this, “shall apply to residences purchased after the date of the enactment of this Act.”

Bummer for a lot of preexisting home buyers who could have used it… including me.

What Credits Did the Measure Extend?

• The original $8,000 credit given to first time home buyers will be extended for an additional 6 months with a new claim deadline of April 30th, 2010.  The credit benefit deadline was previously set to expire on November 30 of this year.  To claim the credit, use Form 5405 which you file with your original or amended tax return.
• Unemployment benefits were extended an additional 14 weeks for those who have exhausted their federal aid or will do so by the end of the year.  In states where the unemployment rate is at or above 8.5% the benefits were extended an additional 20 weeks.  The federal aid kicks in after the initial 26 weeks of state benefits are exhausted.

Who Was the Credit Expanded to Include?

• A $6,500 credit will be extended to include home buyers who have lived in their current home for at least five of the last eight years.
• The measure also raises income limits for those claiming the credit to include individuals earning up to $125,000 a year and couples earning $225,000 a year.  The previous limits were $75,000 and $150,000 respectively.
• Please note that… any home owner who sells the home or ceases to use it as a primary residence within three years of purchase must repay the credit.
• Any struggling business can now deduct losses for 2008 and 2009 from profits in five previous profitable years.  It was originally two previous profitable years and was extended only to small businesses.

To Be Eligible for the home buyer credits… buyers in both groups have to have signed a purchase agreement by April 30, 2010, close on the home by June 30, and must use the home as a principal residence.

Should the Government Have Extended Benefits?

This will be the 4th extension of the original $787 billion stimulus law (enacted in quarter four of last year) passed by the federal government in the past 18 months and will stretch the federal aid from 79 weeks to a record 99 possible weeks!  This amount of government intervention in unemployment aid is unprecedented in all past economic downturns, showing once again the severity of the current recession.

Although most taxpayers will take advantage of the extended credits, many are wondering where the government is getting the money from.

According to The New York Times,

Expanding the home buyers’ credit will cost about $11 billion, and the business loss deductions $10.4 billion. To pay for that, Congress further delayed a 2004 tax break for multinational corporations’ worldwide interest expenses that has never taken effect, “saving” $20.1 billion over the coming decade.

The $2.4 billion cost of the jobless benefits will be paid by extending into 2011 a surcharge on employers of $14 a worker that was enacted three decades ago as a temporary step.

What Do You Think?

Are you happy the tax credits have been extended?  Are you worried about where the money is coming from?  Are you both happy and worried?

Chime in now.

Like this article?  Here are 3 free ways to join the community and follow the progress – Sign up for email updates, Subscribe to my RSS feed, And/or follow me on Twitter.

DFA is passionately dedicated to helping people break the bondage of debt and work toward financial freedom using biblical principles.