Tax Credit for Move Up or Move Down

Published On: November 24, 2009

Harney: How the 'move up'

tax credit for homebuyers

works

By Kenneth R. Harney

Posted: 11/14/2009 05:00:00 PM PST

Take a close, hard look at the new $6,500 federal tax credit for so-called "move up" homebuyers that

passed the Senate and House this month. Though it's been getting second billing to the original

$8,000 credit for first-time purchasers - now extended by Congress through June 30 - the

$6,500 credit for current homeowners just might have your name on it.

First things first: The new credit is available now. It took effect the day President Barack Obama signed

the legislation creating it - Nov. 6. This means that if you fit the key criteria - you've owned and

resided in your current home for a consecutive five out of the past eight years, and your adjusted

household income doesn't exceed $125,000 if you file taxes singly, $225,000 if you are married filing

jointly - you can claim the credit as soon as you close on a qualifying house. That could be next week,

next month or next spring. There is no "move up" requirement in the new credit. In fact, homeowners who

plan to downsize into a smaller dwelling may prove to be significant users of the credit, along with people

who are relocating because of employment changes. Some other key features of the $6,500 credit you

ought to know about: Whatever you intend to purchase, the house cannot cost more than $800,000.

The replacement house must become your main home. There is no requirement in the legislation that

you sell your current home. You could rent it out, turn it into a second home, or list it for sale later in

2010 when prices might be higher. If you plan to retain it, however, make sure you move into the new

house on the day you close so that there is noquestion it was your principal residence at that time.

Like the first-time buyer credit, the $6,500 version permits a broad range of dwelling types for your

purchase. These include newly constructed or existing single-family homes, condominiums,

manufactured or mobile homes, and boats that function as your principal residence. You cannot

claim the credit if you are buying a second home or an investment property. The IRS is required by

Congress to scrutinize claims for credits - both for the $6,500 and the $8,000 - far more closely than it did

earlier in 2009. The revised rules require taxpayers to submit copies of their settlement statements (HUD-

1 forms), along with their requests for credits using IRS Form 5405. Congress' new rules also prohibit

individuals under the age of 18 or who are counted as dependents on another taxpayer's filings from

claiming the credit. Homebuyers in 2009 - those who go to closing after Nov. 6 but no later than Dec. 31 -

can claim the $6,500 credit on their 2009 federal tax returns, or amend their 2008 returns. Similarly,

eligible purchasers in 2010 will be able to file for the credit on their 2009 returns or 2010 returns. If you

aren't sure if you can make the deadlines established for the new credit - a binding contract by next April

30 and a settlement by June 30 - do not assume that Congress will provide another For an excellent

consumer resource on both the $6,500 and the $8,000 extended credits, go to

www.federalhousingtaxcredit.com , which is sponsored by the National Association of Home

Builders.

Thank you Ken Harney of the an Jose Mercury News for allowing me to post this great article

Contact Kenneth R. Harney at KenHarney@earthlink.net

.

Harney: How the 'move up' tax credit for homebuyers works - San Jose Mercury News Page 2 of 2

http://www.mercurynews.com/business/ci_13783230 11/16/2009