In some areas, sellers are racing to put their homes on the market before the temporary homebuyer tax credits expire. Currently, homebuyers who qualify need to be in contract to buy a home by April 30. The transaction must close by June 30. The word on the street is that the credits won't be extended again.
The first-time homebuyer tax credit of up to $8,000 on the purchase of a primary residence is available to first-timers who qualify, including previous homeowners who haven't owned in the last three years. For single taxpayers, income limits for purchases made after Nov. 6, 2009, were increased to $125,000 for single taxpayers and $150,000 for married taxpayers filing jointly.
In November, the credit was opened up to long-term homeowners. Those who qualify can receive a tax credit of up to $6,500. They must have lived in their principal residence for five of the last eight years. The income limit for single taxpayers is $125,000; for married couples who file jointly the limit is $225,000.
A tax credit is a bonus, particularly for buyers who are cash-strapped and are buying at the low end of the market. The credit is applied against the income tax you owe the IRS. Even if you don't owe income tax, the IRS will send you a check for the credit you're due.
With both homebuyer tax credits, the purchase price cannot exceed $800,000, which makes it unavailable to many buyers in higher-income areas.
Unfortunately, the time frame for obtaining a tax credit coincided with the time of year that the housing market is usually lowest on inventory. Most sellers don't bring their homes on the market in December, January and February. Typically, sellers bring their homes on the market in April and May when the weather is better.
As a result, buyers in low-inventory, high-demand areas who are trying to beat the April 30 deadline are running into competition from likeminded buyers. In some cases, there are numerous buyers and the price is bid up. It doesn't make sense to pay over market value for a home just to get a tax credit.
HOUSE HUNTING TIP: Buyers who are motivated to buy only if they can take advantage of a tax credit need to find out first if they qualify and how the program works. For instance, if you are a first-time buyer but your wife was a homeowner who sold a year ago, neither of you qualifies for a credit. If you take a credit but don't own the home for three years after you purchase it, you'll have to pay the amount of credit you received back to the Internal Revenue Service. Visit IRS.gov for more specific information.
There is a lot of speculation about what will happen to the home-sale market when the credits expire. A survey conducted by the California Association of Realtors found that 40 percent of California homebuyers in 2009 would not have bought a home if the tax credit had not been available.
However, an informal survey of mortgage brokers and real estate agents indicated that today's buyers will buy whether or not they are in contract by April 30. They'd like to take advantage of the credit if they find the right house in time. Buying a home that will suit your long-term needs should be a primary factor in your homebuying decision. Improved affordability due to low interest rates and home prices is motivating most buyers.
THE CLOSING: The IRS is auditing homebuyer tax credit files for fraud. It would not be wise to backdate your purchase agreement if you go into contract after April 30.
Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."