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Housing: Can the tax credit help you trade up?

Earlier this month, Congress not only extended the tax credit for first-time home buyers, it also provided a tax credit for existing homeowners who are planning to buy a new home.

When Congress extended its tax credit for first-time home buyers earlier this month, it threw in a little something for existing home­owners, said ?Kenneth Harney in The Washington Post. Anyone who has owned and lived in the same home for five consecutive years in the past eight may be eligible for a $6,500 tax credit if they buy a new home. You don’t even have to sell your current home, technically—just as long as you make the new?house your principal place of residence. The catch? Since the tax credit is designed as a short-term stimulus measure, you’ll need to sign a contract by April 30, 2010, and close by June? 30 to qualify for the credit. So, if you’re just starting to look, “you might want to speed? up the process.” Just closed? If you did so after Nov. 6,?the credit may still apply.?

As with most tax perks, there are plenty of other stipulations, said Bill? Bischoff in SmartMoney. First of all, there are still some income limits for qualifying: Your adjusted household income can’t exceed $125,000 for single filers and? $225,000 for joint filers. The purchase price of the house can’t be higher than $800,000, and, if it’s less than $65,000, you can only claim?10 percent of it. Finally, you must maintain the newly purchased home as your principal residence for at least three years. Otherwise, you’ll have to repay the credit.

Don’t go house shopping just for the sake of snagging the credit, said Amy Hoak in Marketwatch.com. But if you already had been considering purchasing one, by all means get the ball rolling. “An early start will give you a better chance of finding the right house before the credit deadline.” Before you start seriously looking, set a? budget and get preapproved for a mortgage. If you would need to sell your current ?home, “price it aggressively from the beginning to drum up interest.” When it comes time to selecting a home to purchase, don’t get too hung up on getting a bargain. In particular, “think twice before pursuing a short?sale,” which can be a “lengthy” and “unpredictable” process. And keep in mind that buying and selling a home in haste means higher transaction costs and other expenses, which could very easily exceed the $6,500 windfall.

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