Time is running out to use first-time tax credit

First-time homebuyers had better get a move on if they hope to take advantage of the $8,000 federal tax credit. The window of opportunity is closing rapidly.

To qualify for the credit, any transaction involving a first-time buyer must close before midnight on Nov. 30, 2009. So, as of this writing, there are less than 100 days to go before the valuable tax benefit expires. And since the buying and lending processes can be painfully slow, you're going to need every bit of that time to get to the closing table.

While the end of November might seem a long way off, Diane Dilzell, president of the New Jersey Association of Realtors, rightly points out that it takes weeks, if not months, to manage the logistics involved in a real-estate transaction. It's also important to realize that any of number of things can go haywire along the way.

"Unique circumstances can be encountered in any transaction, so it is important to account for those factors," says Dilzell, a broker at Pinnacle Realtors in Bedminster, N.J.

Another factor complicating the process: Most settlement service providers like to take time off during the Thanksgiving holidays. And with Thanksgiving this year falling on Nov. 26, four days -- Thursday through Sunday -- could be removed from what is already a short timetable.

Undoubtedly, many closing and escrow agents will scrap vacation plans to handle what is expected to be a crush of settlements. But that highlights yet another potential stumbling block: There may be so many buyers trying to close at the last minute that there might not be enough room for them all.

Moreover, if you're banking on Congress to extend the tax credit, or possibly even expand it, the odds are against you, at least right now.

While there's always a chance that lawmakers will do the unexpected, House and Senate leaders have said they will not take up any expiring provisions until they have completed work on health care-reform legislation. Moreover, with many signs indicating that the moribund market is starting to awaken, many legislators might decide that housing no longer needs a shot in the arm.

And don't expect to sneak a Dec. 1 closing past the Internal Revenue Service, either. That's fraud and the nation's tax collector has any number of sophisticated screening tools to quickly identify returns that may contain fraudulent claims for the credit.

What's more, the IRS has vowed to go after taxpayers who try to pull a fast one. "We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction," Eileen Mayer, the agency's chief criminal investigator, said.

First-timers are defined as anyone who has not owned a principal residence during the three-year period immediately prior to the purchase. But if you sell the house that qualifies for the credit before the end of the year, you can't claim it.

Vacation homes and investment properties do not qualify, only main residences, new or resale, which can be a single-family house, town house, condominium, manufactured (or mobile) home or even a houseboat. If you hire a contractor to build the house, as opposed to buying it from a builder, the house is still treated as having been purchased.

Married persons filing as such cannot claim the credit if either spouse has owned a main residence within the past three years, but unmarried joint purchasers -- say, a parent and his son -- may allocate the credit in any way they see fit as long as it does not exceed the $8,000 maximum.

A number of states are offering special short-term second loans to qualified buyers. These loans are available for little or no interest and may be repaid with the homebuyer tax-credit refund.

For more information of these programs, contact your state housing finance agency or visit the National Council of State Housing Agencies' Web site, www.ncsha.org/section.cfm/3/34/2920.

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.