2010 Real Estate Guide
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4 questions on $6,500 home tax credit

Homeowners who want to take advantage of a new home tax credit worth up to $6,500 when they buy a new place have until April 30, 2010, to get a deal under way. Is it time for you to get moving?

Before you decide, see if you can answer "yes" to these four questions.

Are you already in the market?

Let's assume you qualify for the tax break. That means you've been in your current home for at least five of the last eight years consecutively, you're purchasing a new principal residence -- not a vacation home -- that costs no more than $800,000, and you meet the income threshold -- $125,000 for individuals and $225,000 for joint filers -- to get the full $6,500 credit.

The tax credit is yours unless you sell or stop using the home as your principal residence within three years after the date of purchase. Qualified homebuyers also can take the tax credit on their 2009 or 2010 income tax returns.

But the decision to go after it hinges on other factors. For instance, if you were already planning to move, the tax credit can help you recoup some of those repairs you've been putting off to get your home ready for sale.

"It's a benefit if you need or want to move," says Dorcas Helfant-Browning, past president of the National Association of Realtors, or NAR, and owner of a Coldwell Banker agency in Virginia Beach, Va.

"Those who have been talking about a move for a specific life reason," such as the desire to upgrade or downsize, to move closer to your children or make room for an aging parent, are the best candidates for the tax credit, she says.

Do local market conditions look favorable?

Helfant-Browning points to three reasons to make the case that now is a good time to buy a new home and upgrade from your current one.

"No. 1, interest rates are as low as they've ever been in our lifetime," Helfant-Browning says. "No. 2, prices are very competitive, and you can buy a lot more home today than you could three years ago. And thirdly, because of the first-time buyer tax credit, the first-time buyers are eating up the good inventory that's affordable, and that's good news for sellers."

But of course, real estate is always all about location. Jim Saulnier, a Certified Financial Planner in Fort Collins, Colo., believes home prices are close to bottoming in many markets, but not all.

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Major metropolitan areas in California, Florida and Nevada saw their third quarter 2009 median home prices drop by double-digits from the year-ago period, according to a NAR survey. The worst was Cape Coral-Fort Myers, Fla., where prices plunged by 40 percent. The highest gain -- 19.2 percent -- was in Cumberland, Md.-W.Va.

"Anybody contemplating doing this must feel strongly that the homes in their area have bottomed or are very close to bottoming," says Saulnier, who recommends getting advice from a Realtor or an appraiser about how home values are trending in your area. "You don't want to do a lateral move (or an upgrade) only to be under water in that home a year or two later."

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