Newly Enacted Statute Expands, Extends Home Buyer Tax Credit Program, and Other Tax Benefits

U.S. President Barack Obama signed into law on November 6, 2009 the Worker, Homeownership, and Business Assistance Act of 2009, a legislation that significantly expands the popular first-time home buyer tax credit that was enacted in February 2009.

The bill passed the House of Representatives on a 403-12 vote on November 5, 2009. The Senate passed the legislation 98-0 on Wednesday, November 4, 2009.

The new law provides a one-time extension of the credit for homes purchased or under contract by April 30, 2010. A credit of up to $8,000 will apply to qualifying first-time buyers, and a smaller credit of up $6,500 will now apply to families that have lived in their homes for at least five years and wish to step up to a new home.

The statute also increases the income eligibility limits for the tax credit from $75,000 to $125,000 for individuals, and from $150,000 to $225,000 for joint filers. The cost of the home cannot exceed $800,000.

The new law also extends a similar credit until May, 2011 for members of the uniformed services whose duty takes them overseas. The new law also contains important measures to combat tax fraud and protect responsible homebuyers, including setting a minimum age for home purchase and requiring documentary proof of the purchase in order to receive the credit.

By way of background, under the original law that took effect in February 2009, buyers needed to close the transaction by November 30. However, under the terms of the new law, home buyers must have a signed sales contract before May 1, 2010, but they have until the end of June to actually close the transaction. At the same time, the new law raises the annual income limits from $75,000 to $125,000 for singles and from $150,000 to $225,000 for married couples.

In addition, the new law provides an expanded tax cut to businesses, providing them with the immediate cash they need to pursue an expansion or avoid contracting or furloughing their workers. The American Recovery Reinvestment Act (“ARRA”) included a provision that allowed small businesses to count their losses this year against the taxes they paid in previous years. The newly enacted law extended that benefit for an additional year and expanded it to medium and large businesses as well. Business losses incurred in 2008 or 2009 can now be used to recoup taxes paid in the preceding five years.

Likewise, the new law allows up to 20 additional weeks of unemployment insurance benefits, with the most weeks going to workers in states with the highest unemployment rates.

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