The “Worker, Homeownership, and Business Assistance Act of 2009,” signed into law on Nov. 6, 2009 extends and modifies the first-time homebuyer tax credit, making it applicable to existing homeowners, and particularly attractive to seniors wishing to downsize. These important changes could make it easier for you or someone in your family to buy or sell a home.

Before the new law was enacted, the homebuyer credit was only available for qualifying first-time home purchases after April 8, 2008, and before December 1, 2009. The top credit for homes bought in 2009 is $8,000 ($4,000 for a married individual filing separately) or 10% of the residence's purchase price, whichever is less. Only the purchase of a main home located in the U.S. qualifies. Vacation homes and rental properties are not eligible. The first-time homebuyer credit phased out for individual taxpayers with modified adjusted gross income (AGI) between $75,000 and $95,000 ($150,000 and $170,000 for joint filers) for the year of purchase.

The new law makes several important changes to the homebuyer credit:

1. The program is extended to May (July) of 2010. The homebuyer credit will apply to a person who enters into a written binding contract before May 1, 2010, and closes on the purchase of the principal residence before July 1, 2010. Buyers who find a home they like but can't close on it before May 1, 2010, can go to contract on the home before May 1, 2010, close on it before July 1, 2010, and get the homebuyer credit (if they otherwise qualify).
2. The homebuyer credit may be claimed by existing homeowners who are “long-time residents.” For purchases after November 6, 2009, you can claim the homebuyer credit if you (and, if married, your spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that you buy the subsequent principal residence. For example, empty nesters who have lived in your home for at least 5 years are eligible for the credit as long as the new home has a purchase price of less than $800,000. There's no requirement for your current home to be sold in order to qualify for a homebuyer credit on the replacement principal residence. Thus, the replacement residence can be bought to beat the new deadlines (explained above) before the old home is sold. For that matter, you can hold on to your prior principal residence in the hope of achieving a better selling price later on.
3. The maximum credit amount is reduced. The maximum allowable homebuyer credit for qualifying existing homeowners is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
4. The homebuyer credit is available to higher income taxpayers. For purchases after November 6, 2009, the homebuyer credit phases out over much higher modified AGI levels, making the credit available to a much bigger pool of buyers. For individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.

The tax law still gives you the extraordinary opportunity to get your hands on homebuyer credit cash without waiting to file your tax return for the year in which you buy the qualifying principal residence. Thus, if you qualify for the credit in 2010 you can treat the purchase as having taken place on December 31, 2009 and file an amended return for 2009 claiming the credit for that year, and get your homebuyer credit cash relatively quickly via a tax refund.