Tax credit for first-time homebuyers is new and improved for 2009

Q. I was a first-time homebuyer in May 2008 and I was wondering if I qualified for the $7,500 tax credit that I read about in your column. This individual said he purchased his house on April 8, 2008, and he was one day shy of being eligible for the credit. Does this mean he was too early or too late?

A. He was one day too early, but you qualify.

The federal income tax credit is available for first-time homebuyers who bought on or after April 9. Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full credit.

This is really an interest-free loan, intended to make things easier for cash-strapped homebuyers. If you take the credit on your tax return, you'll be obligated to repay it at the rate of $500 a year for the next 15 years.

Congress has revised the credit for homes purchased in 2009, increasing it to $8,000 and making it a true credit, one that does not need to be repaid. (The same income qualifications apply). For more details, you can try the Web site federalhousingtaxcredit.com.

Q. My wife and I had a house built in Syracuse in 2004 for $177,000. Houses in our development have recently sold in the $225,000 to $250,000 range. If we sold for about that, what would our capital gains tax be? We are both 50, and have invested about $25,000 in upgrades (driveway, fence, landscaping, etc.). We may be relocating and not purchasing another home.

A. It's a pleasure to receive a question about profit on a sale. These days most of my e-mail looks quite different.

Your ages don't have anything to do with the current tax break for home sellers. It no longer matters whether you buy a replacement residence. Because you will own and occupy your home for more than two of the five years before you sell, you and your wife can take up to half a million-dollars profit free of any federal capital gains tax.

Q. Our house is 50 years old and, even though our kitchen has had some updates, the cabinets are original. The original kitchen had built-ins and as a result we have a smaller refrigerator. In a few years we will have to sell as we are also aging. Should we have new cabinets installed or should we leave it to the new owner? How does this affect our selling? I did hear someone say she would rather do the kitchen her own way.

A. There's no one right answer. As so often, it all depends.

Where are you located? What are price levels in your neighborhood? How does your home compare with its neighbors? What quality were the original cabinets? Do they have architectural value? What condition are they in? Would you also need to redo the counters?

Local real estate brokers, who are familiar with buyers' expectations in your area, can judge better than I can from this distance. Agents are used to giving free advice. Call a few nearby brokerages. You may well find agents who'd be interested in coming over to see your kitchen firsthand and giving you informed opinions.

Q. I just received tax info from the mortgage company about my house that was sold at a short sale. What should I tell my tax person to do with this? I just want to be able to explain it to him the right way.

A. You sell for less than you owe, and (in most cases) your lender agrees to cancel the remaining debt.

The bad news is that when you take a loss on the sale of your own home, it's not tax-deductible. The good news is that right now the IRS does not classify forgiven mortgage debt as taxable income.

Just give your tax person the documents. He will know how to handle the sale.

Q. I have a contract on my home. The buyer is interested in buying some furniture. My broker tells me I may not speak to the buyer at all. No furniture was included in the contract. Why can I not speak to the buyer?

A. Of course you can speak to the buyer. Your agent must obey your orders, not the other way around.

The broker may be acting in your best interest, though, by advising you not to contact the buyer directly. Both parties can be under stress during the critical time between contract and closing, and it's easy to say the wrong thing. A discussion about the sale of furniture could end up endangering the whole transaction. Wait till you're sure everything else is settled.

• Edith Lank will respond to questions sent to her at 240 Hemingway Drive, Rochester, N.Y. 14620 (please include a stamped return envelope), or readers may e-mail ehlank@aol.com.

2009, Creators Syndicate Inc.