On November 6, 2009 President Obama signed legislation which contains two provisions which are important for the real estate industry.

Extension of New Homeowners Credit of $8,000   Individuals who have not owned a principal residence in the last three years now have until April 30, 2010 to purchase a residence in order to get a refundable credit of $8,000.  Previously this opportunity was to sunset on November 30, 2009.  If a binding contract is in place on April 30, 2010 the credit can still be obtained if escrow closes by June 30, 2010.

As before the new home must be occupied as a principal residence for at least three years otherwise the credit must be repaid.

 New Longtime Homeowners Credit of $6,500

Existing homeowners also can get a credit if they purchase a new principal residence by April 30, 2010 (June 30 for binding contracts on April 30, 2010). The $6,500 refundable credit is only available to individuals who have owned a principal residence for at least five out of the eight years before the purchase date of the new home.

There is no requirement that the old residence be sold.  The credit is still available if the old home becomes a second home, if it is converted to a rental or if the homeowner decides to wait until prices come back before selling.

In addition to taking the credit of $6,500 for a new home, a homeowner can still exclude the gain on sale of the old home up to $500,000 for married couples, $250,000 for single individuals.

This creates an opportunity both for individuals who want to step up to a larger house as well as for the empty nesters who would like to downsize.

As before no credit is available for residences acquired by gift or inheritances or for homes purchased from immediate family members.  Taxpayers do not have to wait until they file their 2009 tax returns to get the credit.  For purchases in 2009 the credit may be claimed by filing an amended return for 2008.

Both credits are phased out for high income individuals with adjusted gross income over $225,000 if married and $125,000 if single.

As usual it is important that clients consult with their tax professionals to make sure that they will qualify for the credit.