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When credit is due

The government has expanded its tax incentive beyond first-time home buyers, and you have through April to qualify

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By Ann Carrns
Globe Correspondent / February 28, 2010

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You’ve got two months and counting.

Home buyers have until the end of April to put a home purchase under contract and qualify for the federal government’s housewarming gift of a tax credit for as much as $8,000.

A choice perk for buyers, the tax credit also has clearly energized the real estate market, said Mark Lesses, a broker at Coldwell Banker in Arlington, who points to increased numbers of closings in the near northwestern suburbs, particularly of condominiums.

Unlike an earlier generation of the tax credit, the current home buyer bonus doesn’t have to be repaid -as long as buyers use the property as their primary residence for at least three years. It’s also “refundable,’’ which means that if, for example, you owe $5,000 in taxes and qualify for $8,000 in credit, you’ll get a check for the $3,000 difference.

The credit also was expanded by Congress last year to include existing homeowners who are buying a new residence, although their maximum credit is a lower $6,500.

The purchase must have been made after Nov. 6 , and buyers must show they lived in their old home for at least five consecutive years during the past eight years.

Importantly, those who fall into the “first-time home buyer’’ category can also own real estate, said Carol Benintendi, an accountant in Newton, as long as the property wasn’t their primary residence in the three years prior to closing on the new home.

The credit is for 10 percent of the purchase price, and the house cannot cost more than $800,000. Boston-area buyers will probably qualify for the maximum - $8,000 for first-timers - since only homes under $80,000 fall into the partial-credit territory.

Moreover, filers who make as much as $20,000 above the income thresholds can still qualify for a partial credit.

And, anyone intending to claim the credit must close on the purchase before July 1.

There are some things to know about filing for the credit.

First, you can’t file until after the closing on the house. Buyers in 2010 can choose to claim the credit on their 2009 tax return or wait until filing their 2010 return. “Most will want to file for 2009, to get the cash in their pocket,’’ said Mark Misselbeck, an accountant with Levine Katz Nannis & Solomon PC in Needham.

Those who’ve closed after filing their 2009 returns can submit an amended return, along with the purchase documents - but be prepared to wait. Because of higher volumes of amended returns this year, the Internal Revenue Service said, it may take up to 16 weeks to process the return and issue a check for the credit. Also, you won’t be able to file your returns electronically because of the amount of documentation required to support the credit.

And about that documentation: There was some abuse with earlier versions of the credit, so filers should expect their supporting documentation to be carefully reviewed by the IRS.

Buyers have to fill out IRS Form 5405 and attach it and a copy of their settlement statement to their tax returns. Repeat buyers eligible for the lower credit will need to provide additional materials to prove they lived in their old home for the qualifying period.

The IRS recommends repeat buyers add documents such as property tax records, mortgage interest statements, or homeowner’s insurance records. “If they don’t submit documentation, the credit will be disallowed, or the check will be delayed while they get the documentation,’’ Misselbeck said.

Low- and moderate-income buyers needing help with a down payment or closing costs may benefit from a program offered by Massachusetts Housing Finance Agency, the state’s affordable-housing bank. The agency “monetizes’’ the federal tax credit by issuing a short-term loan to the buyer for the amount of the credit. After the closing, the buyer has until June 1, 2011 to file for the credit and repay the loan, interest free. Or the buyer can keep the government check for the credit and pay off the loan over 10 years -at the same interest rate as that carried on their mortgage.

The program is only available to buyers who qualify for a mortgage through one of MassHousing’s approved lenders. Currently, 63 of the agency’s 160 lenders also offer the tax-credit loan program, said Mass. Housing spokesman Tom Farmer. Income eligibility for the agency’s loans vary by geography; visit www.masshousing.com for a detailed list.

Two months may seem like a lot of time to tie up a home purchase. Then again, if you’ve been looking for a while and have been frustrated by the limited offerings, you may feel as if you have to rush into a purchase in order to qualify for the tax credit. Don’t, said Pam Cote, a broker with ReMax Advantage in Beverly.

“If the timing is right and you find what you’re looking for, then great,’’ Cote said. “But I encourage them to do their research and feel confident, rather than rushing just to get the credit.’’

First-time home buyers

Maximum purchase price: $800,000

Income limits: single, $125,000; married, $225,000

Maximum credit: $8,000

Qualification: not owned primary residence past three years.

Previous owners

Maximum purchase price: $800,000

Income limits: single, $125,000; married, $225,000

Maximum credit: $6,500.

Qualification: owned home at least five consecutive years in past eight

For additional information about the tax credit, go to www.irs.gov or www.federalhousingtaxcredit.com, a site maintained by the National Association of Homebuilders.