While most of our readers have probably owned several homes, some may have children or grandchildren who are in the market for their first home. These readers will be happy to learn that the Act also extended the first time home buyer credit for another four to six months to include homes purchased before May 1, 2010, or before July 1, 2010, if the taxpayer had entered into a written binding contract to purchase the home before May 1, 2010. Eligibility for the credit was expanded to include individuals who had previously purchased a home but had lived in the same principal residence for any five consecutive year period during the eight year period ending on the date a new home is purchased. The credit for these purchasers is limited to $6,500 as compared to $8,000 for a true first time buyer.
The Act also raises the income ceiling to qualify for the credit. For the year of purchase, the credit is now phased out on a joint return at adjusted gross income levels from $225,000 to $245,000 as compared to a range of $150,000 to $170,000 previously. Also, for the first time a price limit is imposed in order for a house to qualify for the credit. For homes purchased after November 6, 2009, no credit is allowed if the purchase price exceeds $800,000. This is an absolute ceiling; there is no phase-out. A house purchased for $800,000 qualifies for the full credit whereas a house purchased for $800,001 will not qualify for any credit. For this purpose, the purchase price is the same as the purchaser’s adjusted tax basis, so expenditures that are capitalized into the tax basis, such as closing costs, must be taken into account. This may serve to drive down prices of houses that would otherwise have sold for a price somewhat about $800,000. Buyers may start holding their price line at not more than $800,000 in order to qualify for the credit.