mortgage

Tax credit rewards homebuyers

5. U.S. military personnel, U.S. Foreign Service employees and federal employees who work in intelligence agencies are allowed an extra year in which to buy a home and are exempt from the 36-month payback rule if they move out of the home due to a qualified official period of extended duty.

6. The purchased home can cost more or less than the existing home, but not more than $800,000. That means homeowners can move up to a more costly home or trade down to a more modest one to meet their needs.

7. Buyers must have owned and occupied a principal residence for at least five consecutive years during the eight-year period that ends on the day the new home is purchased. For example, if the new home was purchased on March 30, 2010, the eight-year period would have started April 1, 2002, and ended March 30, 2010. If the homebuyers are a married couple, both spouses must meet this test to qualify for the tax credit.

This rule effectively restricts the use of the tax credit to established homeowners who currently own or recently sold a home.

Some newer homeowners may object to that restriction, but Patti Ketcham, owner of Ketcham Realty Group in Tallahassee, Fla., is among those in the Realtor ranks who believe the restriction is reasonable.

"I am just delighted that they said you have to (own and live in that home) for five years because I think that's healthy," she says.

8. The full tax credit is subject to income limits of $125,000 for individuals and $225,000 for married couples who file a joint tax return. A partial proportional credit can be taken by individuals whose income is more than $125,000, but less than $145,000 and married couples whose income is more than $225,000, but less than $245,000. "Income" in this context means the taxpayer's modified adjusted gross income, or MAGI, as defined by the Internal Revenue Service.

9. Buyers should consider the best use of the tax credit, whether it is the full $6,500 or a lesser amount due to the income limitations or modest cost of the home. Bernard suggests that that best use may be to remodel part of their new home so their purchase criteria can be more flexible.

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