The credit is reasonably straightforward, but there are some tips for those who want to take advantage of it. Here’s what you should know:
Homes: buying, selling & credits
1. Deadline: April 30, 2010
The most important tip is to be aware of the deadline. Buyers who want to use the tax credit must have their new home under contract, meaning “in escrow” by April 30, 2010, and must close the transaction within 60 days after that date.
That deadline is much sooner than it may seem: Many buyers take months to locate a house, and closing a transaction typically takes 45 to 60 days.
First-time buyers should get started soon because they may face a lot of competition from other buyers. That price range is “very popular” and those homes tend to sell quickly and receive multiple offers.
Our housing inventory is low in San Diego right now, all the more reason to start looking now.
The short deadline may create even more of a crunch for homeowners who need to sell their current home in order to purchase a new one. Sellers need to be realistic about the value of their current home and put their home on the market as soon as possible.
Buyers who get behind the deadlines shouldn’t count on another extension to keep them in the game. Senator, Johnny Isakson, R-Ga., a former Realtor and the principal supporter of the legislation that extended and expanded the credit, has said in a statement that the tax credit won’t be extended again.
2. Credit up to $8,000 or $6,500
Buyers also need to understand that the tax credit is equal to 10 percent of the sale price of the home, which could be less than the maximum credit of $8,000 for first-time buyers and up to $6,500 for 2nd time buyers.
For example, if a first-time buyer purchased a small condominium that cost $70,000, the tax credit would be $7,000. And by the way, if the home costs more than $800,000, the credit now drops to zero.
3. Get good advice
Homebuyers who want to take advantage of the tax credit should consult the right people for help, including:
- A tax accountant, who can help them ensure they meet all the requirements to use the credit.
- A lender, who can help them choose a loan program that will fit their needs.
- A Realtor, who can help them locate a home they can afford and want to purchase.
Buyers should be aware that not all loans allow the borrower to finance closing costs or accept a contribution from the seller toward those costs. Buyers whose savings won’t cover all the out-of-pocket costs to buy a home, should discuss that with their lender.
4. Beware of tax fraud
It is important to educate yourself and understand the terms involved. This type of program always brings out the money grabbers.
Three Web sites that may be helpful are:
Buyers and sellers should be careful of any advice that sounds suspicious. For example: If your told to withhold any information from your lender, you should run from that person. All items are to be talked about and shared honestly. The lender and Realtor are there to help the buyer/seller and always should have their best interest in mind.
One final tip: The IRS has found such a high incidence of fraud and creative tax accounting associated with the homebuyer tax credit that taxpayers who take the credit will now be required to attach a copy of the settlement statement to their federal tax return as proof of purchase. Buyers should keep their paperwork handy.
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