From IRS.GOV
Legislative changes in November 2009 expanded and extended the credit and also added documentation requirements for claiming the credit. Due to increased compliance checks by the IRS, failure to submit documentation will slow down the issuance of any applicable refund.

Filing Requirements
2009 Tax Return
Because of the documentation requirements for claiming the credit, taxpayers who claim the credit on their 2009 tax return must file a paper — not electronic — return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit (see the instructions for help with the form), with one of the following:

* For purchasers of conventional homes, a copy of Form HUD-1, Settlement Statement, or other settlement statement, showing all parties’ names and signatures, property address, sales price and date of purchase.
* For purchasers of mobile homes 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 showing the owner’s name, property address and date of the certificate.

The new legislation extends the credit to long-time residents of the same main home if they purchase a new main home. To qualify, eligible taxpayers 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. For long-time residents claiming the credit, the IRS recommends attaching, in addition to the documents described above, any of the following documentation of the five-consecutive-year period:

* Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
* Property tax records or
* Homeowner’s insurance records.

2008 Tax Return
It is still possible to claim the homebuyer credit for 2009 home purchases on 2008 tax returns. Homebuyers may use the December 2009 revision of the Form 5405 along with Form 1040X to amend their 2008 tax return.
Homebuyer Credit Expanded and Extended

The Worker, Homeownership and Business Assistance Act of 2009, signed into law on Nov. 6, 2009, extends and expands the first-time homebuyer credit allowed by previous Acts.

Under the new law, an eligible taxpayer must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 return.

The new law also:
* Authorizes the credit for long-time homeowners buying a new principal residence.
* Raises the income limitations for homeowners claiming the credit.

News release 2009-108 has the details, as do two new IRS videos in English and Spanish.

Members of the military, Foreign Service and intelligence community serving outside the U.S. should also be aware of new benefits in the law that apply particularly to them.

Following is general information for first-time homebuyers who settled on a new home on or before Nov. 6, 2009.
For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 expanded the first-time homebuyer credit by increasing the credit amount to $8,000 for purchases made in 2009 before Dec. 1. However, the new Worker, Homeownership and Business Assistance Act of 2009 has extended the deadline. Now, taxpayers who have a binding contract to purchase a home before May 1, 2010, are eligible for the credit. Buyers must close on the home before July 1, 2010. [Added Nov. 12, 2009]

For home purchased in 2009, the credit does not have to be paid back unless the home ceases to be the taxpayer’s main residence within a three-year period following the purchase.

First-time homebuyers who purchase a home in 2009 can claim the credit on either a 2008 tax return, due April 15, 2009, or a 2009 tax return, due April 15, 2010. The credit may not be claimed before the closing date. News release 2009-27 has more information on these options.
General Information

Homebuyers who purchased a home in 2008, 2009 or 2010 may be able to take advantage of the first-time homebuyer credit. The credit:
* Applies only to homes used as a taxpayer’s principal residence.
* Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
* Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

* IR-2010-6, New Homebuyer Credit Form Released; Taxpayers Reminded to Attach Settlement Statement and Other Key Documents
* IR-2009-83, First-Time Homebuyer Credit Provides Tax Benefits to 1.4 Million Families to Date
* The American Recovery and Reinvestment Act of 2009: Information Center

As you all are aware, the mortgage market has experienced some significant changes over the past year. One significant change will directly affect home owners who are debating whether or not to purchase a new home. These changes include the following developments:

1. Maximum Seller assistance will be reduced from 6% down to 3% on all home purchases. Seller assistance allows home buyers to write a higher offer price for the purchase of a home in exchange for help toward closing costs. This causes prospective home buyer’s, already short of cash, to have to pay more of their closing costs
When this goes into effect: TBD, Spring 2010

2. The cost of required up-front mortgage insurance for loans guaranteed by FHA will increase from 1.75% to 2.25% of the loan size. For a borrower purchasing a $200,000 home with a $7,000 down payment, the up-front mortgage insurance premium will increase by $965
When this goes into effect: April 5th, 2010

3. The Home Buyer tax credit is in effect for ratified purchase contracts placed by April 30th 2010 for settlement by June 30th. This credit provides eligible first time home buyers a tax credit for up to $8000 and existing eligible home owners a credit for up to $6500. Contact me for details.

Senate Bill 1678 extends and expands the homebuyers tax credit to April 30, 2010 for binding contracts and allows 60 more days for settlement. The $8,000 credit remains in place for first-time homebuyers. A $6,500 credit is available to other homebuyers who have lived in their current homes for the last 5 years.
The credit is available for homes costing up to $800,000.

The income limits at which the credit is phased out have been lifted from $75,000 to $125,000 for individual filers and from $150,000 to $225,000 for joint filers.

CARDIN LAUDS EXTENSION OF TAX CREDIT FOR FIRST-TIME HOMEBUYERS, NEW CREDIT FOR STEP-UP PURCHASES
Nearly half of all Maryland home purchases in 2009 have been by first-time buyers – up 10 percent

Washington, DC – November 5, 2009 – (RealEstateRama) — U.S. Senator Benjamin L. Cardin (D-MD), co-chair of the Senate Real Estate Caucus and one of the authors of the first-time homebuyers’ tax credit, today praised the Senate for its timely action to keep the $8,000 credit from expiring at the end of this month. In September, Senator Cardin led a group of Senators, including Johnny Isakson (R-GA), Harry Reid (D-NV), John Ensign (R-NV), and Debbie Stabenow (D-MI), introducing a bill to extend the first-time homebuyers’ tax credit.

Today, the Senate passed the H.R. 3548, the Workers, Home Owners and Business Assistance Act, which included a provision Senator Cardin co-sponsored extending the first-time homebuyers tax credit and providing a new $6,500 tax credit for so-called step-up homebuyers who have been in their current home for the last five years. Both credits are designed to continue to provide a temporary boost to the housing market at a critical time in its recovery.

“The first-time homebuyers’ tax credit has worked. In Maryland, it’s estimated that nearly half of all home sales in 2009 are to first-time home buyers. Nationwide, it has triggered hundreds of thousands of sales that would not have happened if not for this tax credit. While there are signs the housing market is stabilizing, there is much more to be done. The credit has succeeded in lessening the glut of homes for sale but our economy is still hurting.

“Our current economic circumstances made it critical that we extended this temporary tax credit so that homebuyers, particularly new homebuyers, would have the confidence to get off the sidelines and into the market now. A healthy real estate market is essential to pulling us out of this recession and growing our economy.

“I am pleased that this short-term extension and expansion of the homebuyers’ tax credit is fully paid for. It will not add to our deficit and it will further help our economy through direct and indirect spending and investment. It also includes tough, anti-fraud language to ensure that the credit is provided only those families who qualify. ”

Representatives from the IRS testified before Congress last month that at least 1.5 million individuals or families had applied for the first-time home buyer tax credit. As many as 40 percent of all homebuyers this year will qualify. Estimates vary, but the credit is directly responsible for 200,000 to 400,000 purchases this year. According to the National Association of Realtors, those additional sales have pumped approximately $22 billion into the economy.

The substitute amendment – which Senator Cardin co-sponsored and which is similar to the bill he introduced (S. 1678) – extends and expands the credit to April 30, 2010 for binding contracts and allows 60 more days for settlement. The $8,000 credit remains in place for first-time homebuyers. A $6,500 credit is available to other homebuyers who have lived in their current homes for the last 5 years.

The credit is available for homes costing up to $800,000.

The income limits at which the credit is phased out have been lifted from $75,000 to $125,000 for individual filers and from $150,000 to $225,000 for joint filers.

Under the compromise reached this week, the $8,000 tax credit extension would cover first-time home buyers who sign a contract for a home by the end of April and close by the end of June. At the same time, it also creates a $6,500 tax credit for those who buy a home, but have owned a home for at least five consecutive years out of the past eight years.

Finally, under the $8,000 tax credit extension, the income limit would be raised to $125,000 a year for individuals and $225,000 for married couples. The up from the current income limits are $75,000 and $150,000, respectively.

Certainly, real estate professionals are all in favor of this $8,000 tax credit extension. Interestingly, both the Republicans and Democrats are in favor of the $8,000 tax credit extension. The compromise legislation could be attached to a bill that seeks to extend unemployment benefits.

If that choice is not made, the $8,000 tax credit extension might be moved as a stand-alone measure. Either way, both the full Senate as well as the House will have to approve the extension before it could become law.