New, More Generous Home Buyer Tax Credits Signed into Law

Millions more people are now eligible for home buyer tax credits, thanks to new legislation recently passed by Congress and signed by President Obama. Here’s a primer on what the new rules mean to you if you are in the market for a new home.

An Enhanced $8,000 Credit

First of all, the new provisions extend the deadline for the successful $8,000 first-time home buyer tax credit. The program, which has been in place for about a year, has helped boost sales and get the real estate market back on its feet while also providing more affordable housing for millions of Americans. But the original perk was only available to those whose annual income did not exceed $95,000 and the new extension raises that limit to $125,000 – or $225,000 for married couples.

Homes must be under contract by the end of April, 2010, and in order to claim the credit the settlement statement from the transaction must be attached to your tax return. Anyone who is serving in the military outside of the USA during any part of 2009 or early 2010, however, will be given an extra year to claim their credit.

In most cases buyers also need to live in the home for at least three years, and if they sell sooner than they the government will require that they repay the credit. That rule is intended to prevent professional speculators and investors from abusing the tax credit while “flipping” properties – a practice that helped to expand the real estate bubble and fuel the abrupt housing market crash a few years ago.

A New $6,500 Credit

But the biggest buzz regarding the recent legislation is a special $6,500 tax credit that applies to those who are already homeowners. Anyone who has owned and lived in a home for at least five consecutive years may be able to qualify for the credit when they purchase another home and use it as their new principal residence. Those who have been considering upgrading their home, for example, can buy a larger property and take advantage of the credit. Likewise, those who want to scale down can sell their current home, buy something smaller, and pocket extra money by using the $6,500 incentive. Some exceptions apply, and those are mostly related to allowable thresholds of adjusted annual gross income with the credit only available to singles earning $125,000 or less and married couples with income that does not exceed $225,000.

Where the rules get rather fuzzy and complicated is when you sell a home and make enough profit from that sale to push your income levels past those that are allowed – which would essentially disqualify you for the tax credit. But before deciding that you are not going to be eligible, it is a good idea to have a tax accountant crunch the numbers. That’s because if you have lived in the home for at least two out of the past five years, you may qualify for another standard deduction which applies to capital gains.

Individual taxpayers in that kind of situation can exclude up to $250,000 in profits from the sale of their home, and married couples can knock as much as half a million dollars off the profits they have to pay taxes on from the sale of a residence. So once that additional calculation is done and profits from the sale are then subtracted from your taxable income it could bring the level of adjusted income back down again in a substantial way. If it cuts the income low enough then even those who made big profits may very well qualify for the $6,500 credit.

Let’s say, for example, that individual taxable income for the year is $100,000. Selling a home for a $50,000 profit pushes income to $150,000 – which is above the $125,000 limit to qualify for a $6,500 tax credit. But those eligible for the capital gains deduction can take it to effectively offset the $50,000 profit. Now they are back where they started with $100,000 of taxable income so they can – after all is said and done – still enjoy the $6,500 credit.

The Need for LGBT Marriage Laws

Of course for the LGBT community the legal language in these provisions underscores the importance of passing comprehensive gay marriage legislation to end the kind of discrimination represented by income or deduction amounts that only apply to “legally married” couples.

Currently Massachusetts, Vermont, New Hampshire, Connecticut and Iowa do recognize gay marriage, and many political observers expect that New Jersey will soon pass a similar law. But for most LGBT couples real estate tax benefits written in terms of “married couples” still do not apply. So despite a disappointing loss in Maine the fight continues and one day the tide will turn in favor of true equality with LGBT rights protected not just at the state but also at the federal level.

For expert help with all your real estate needs contact www.GayRealEstate.com. This network specializes in serving the LGBT community. Or call toll free at 1-888-420-MOVE 1-888-420-MOVE (6683).

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