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Further September 2010 Extension of $8,000 First , Plus New $6500 Existing Home Buyer Tax Credit Approved. 2011 Extensions Available For Certain Groups.

Approved! First-time home buyers now have until Sept. 30 to close on their home purchases and qualify for the $8,000/$6500 tax credit under a newly approved extension bill. The closing deadline was originally June 30. To be eligible, buyers still need a contract that was in place by April 30.

The home buyer credit, extended and expanded over the last 3 years is set to expire at the end of this month with Congress still unable to approve the extension as part of HR 4213 (see previous update below). However, recently released data for May 2010 shows worrying trends of sharply declining sales of existing and new homes. Further, inventory data and foreclosure activity have not shown any signs of improvement. All this suggests the expiration of the home buyer credit may have more of an impact than people thought.

This news and voter pressure prompted House members to take more action with the stalling of the HR 4213 bill in Congress (due to other provisions in it). As such a new bill – H.R 5623 – was introduced and approved by the House (409-5) to extend the home buyer credit for new and existing home buyers.  The bill has now passed in the Senate without amendment by unanimous consent. President Obama has also signed the bill into law. Here is a summary of the bill:

H.R. 5623Homebuyers Assistance and Improvement Act of 2010. Among other items, this bill would extend the homebuyer tax credit of up to $8,000 for the purchase of a principal residence before October 1, 2010. The current benefits apply to cover buyers who enter into contracts before April 30 and close by June 30. This bill extends the closing date to September 30, 2010.

The bill would provide any home buyer who entered into a contract on a home by April 30, 2010, but has been unable to go to closing within the required 60 days, an additional 90 days to close and qualify for the credit. This provision is estimated to cost $140 million

The approval of this bill is great news for many home buyers who signed a purchase agreement/contract prior to April 30th but are having difficulty closing before June 30th. One thing to clarify -  this bill does not extend the deadline for home buyers to sign a contract for a home and hence qualify for the tax credit (still April 30th); rather it extends the deadline for closing the transaction, from June 30 to Sept.30.

The National Association of Realtors estimates that this new extension will help about 180,000 to 200,000 homebuyers who already signed purchase agreements and were likely to miss the June 30th deadline.

The IRS has also released more details on the approved extension and required documentation (detailed in previous updates below). To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.

Besides filling out Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, all eligible home buyers must also include with their tax return one of the following documents:

  • A copy of the settlement statement showing all parties’ names and signatures if required by local law, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
  • For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties’ names and signatures, property address, purchase price and date of purchase.
  • For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy (from the county/city office) showing the owner’s name, property address and date of the certificate.
  • Existing Home Buyers who qualify for this credit must must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. This can be done by providing Mortgage interest statements, Property tax records or Homeowner’s insurance records

There are three options for claiming the credit on a qualifying 2010 purchase:

  • If a 2009 return has not yet been filed, claim it on Form 1040 for tax-year 2009. Though these returns cannot be filed electronically, taxpayers can still use IRS Free File to prepare their return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS urges taxpayers claiming refunds to choose direct deposit.
  • If a 2009 return has already been filed, claim it on an amended return using Form 1040X.
  • Whether or not a 2009 return has been filed, wait until next year and claim it on a 2010 Form 1040.

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