The Extension.

The new extension of the First Time Home Buyer Tax Credit removes the previous expiration of December 1, 2009 and changes it to May 1, 2010. Much like the old tax credit, it expires on that date, which means all actions must be taken on or before April 30, 2010. Unlike the old version, the new version allows for timely closings to occur. Now, your new home must be under contract (fully executed) on April 30th, but you will now be given time to close. As long as your transaction is fully closed (and I’m going to assume funded, although I have not seen specifics on that) before July 1, 2010 (in other words on or before June 30, 2010), you will be able to file and claim the tax credit.

The amount of the tax credit remains the same – 10% of the purchase price up to $8,000.

Income limits have changed for individuals and couples. Previous limits were $75,000/$125,000 and have now been raised to $125,000 for individuals and $225,000 for married couples.

There will be no tax credit on homes priced higher than $800,000 and the tax credit only applies to primary residents (second homes and investment properties do not qualify).

Buyers will now be required to provide proof of the home purchase with a copy of their “properly executed” HUD-1 Settlement Sheet.

The Expansion.

For the first time since the First Time Home Buyer Tax Credit program began, the tax credit will now be available to buyers who are not classified as first time home buyers (having not owned a home in the last three years). These so-called “move-up” buyers will now have a chance to take advantage of their own version of the tax credit. Many of the rules remain the same, but their are some differences.

The term “move-up” buyers is technically incorrect. The wording in the amendment calls them “long-time residents of same principal residence.” What does that mean? First, you don’t have to move up (ie, buy a larger or more expensive home – you can actually down size and still qualify). The government defines these newly qualified buyers as having owned and used the same home as their principal residence for five consecutive years during the past eight years. Although, you don’t have to “move-up,” I have a feeling that term will stick as it’s been tossed around for quite some time. Just remember that it doesn’t quite mean what it sounds like it does.

These buyers will be eligible for a tax credit of 10% of the purchase price up to $6,500.

All the amendments concerning the extension (see above) apply to the expansion (except the actually tax credit amount).

The IRS.

Unfortunately, as with any program of this nature, someone out there always gets the great idea to cheat the system. The First Time Home Buyer Tax Credit has been no exception. Reports of people claiming the credit before buying a home or not buying a home at all, claiming in when they weren’t eligible to qualify, claiming it on the tax returns of a four year old…when you’re doing a refundable tax credit, instances of fraud increase.

The IRS will now require the HUD-1 Settlement Statement as previously stated as well as refuse any claims from taxpayers under the age of 18. I suspect they will be doing much more auditing and double checking this time around. Make sure you visit with your tax professional when you decide to claim the First Time Home Buyer Tax Credit. Any time you’re dealing with the IRS and taxes, you should seek professionals in that field. Although I am well-read on the tax credit, I do not spend my days reading tax law and understanding the inner workings of the IRS.

The Military.

For military members deployed outside of the United States for a minimum of 90 days between December 31, 2008 and May 1, 2010, the tax credit is extended on purchases before May 1, 2011 (home must be under contract on or before April 30, 2011). These contracts must be closed before July 1, 2009 (must close on your home on or before June 30, 2011)