The home buyer credit’s three E’s: extension, expansion and effective date

That's right! Politics trumps tax and economic policy yet again!

Obama put pen to paper this morning and signed the Worker, Homeownership, and Business Assistance Bill of 2009 into law.

Don't get me wrong, I'm happy for folks who can use this to buy a house. Despite the ongoing frustration of keeping a residence in good repair (even without a water heater disaster!), I've been a tax-deducting homeowner for almost three decades.

I just hope that the first-time buyers and those who've lived in their homes for five or more years and are able to claim $8,000 and $6,500 credits, respectively, really are in good financial shape to do so. 

Buying anything simply to get a tax break, even one worth thousands of dollars, is not smart money management. And it could be disastrous when it's a purchase as important and large as a home.

Even the Mortgage News Daily wonders if the tax break will be effective.

We shall see.

What's the date? Speaking of effective, I've gotten some questions about when the new provision for repeat buyers, or "long-time residents" as they're called in the bill, kicks in.

The legislation says:

Provisions relating to long-time residents of the same principal residence, and income, purchase price, age, related party, dependent, and documentation limitations apply for purchases after the date of enactment.

So when exactly is "after"?

For the other home buyer credit extensions, such as the $8,000 for newbies and the ability of the IRS to get tougher on returns claiming the credit, the legislation provides exact dates.

The first-time buyer credit extension is effective for residences purchased after this Nov. 30, the credit's original sunset date.

The IRS gets retroactive ability for what is known as "mathematical and clerical error authority" with regard to credit claiming mistakes thanks to the phrase "for taxable years ending on or after April 9, 2008."

But it's just "after the date of enactment" for the long-time buyer $6,500 credit.

That's got some tax geeks folks wondering if this "after" means it's effective the next day after the signing date.

Most folks, however, are taking it to mean that it's effective immediately after it's signed into law. That would mean it's in place right now.

In that case, if you're going to the closing on your new home this afternoon and you meet the qualifications to get the $6,500 credit, congratulations!

UPDATE: The IRS has clarified the date. It says that the existing home buyer credit applies "for homes purchased after Nov. 6, 2009." 

I realize that not many people are going to be affected by whether it's effective now or tomorrow, but dates are important when it comes to taxes, so I wanted to mention it just in case.

And I'm sure the IRS will be spelling out the precise info about the home buyer credit extension very shortly.

How'd I do? Just in case you were wondering, my prediction of the credit extension was pretty darn close.

In Home buyer credit crystal ball gazing, I said the tax break would be continued for six months. Capitol Hill decided on five, with two more for completion of the purchase process for contracts in place by April 30, 2010.

So splitting the difference, I guess I can say I was right on the money!

Related posts:

• Home buyer credit new definitions, limits
• Senate OKs home buyer credit extension
• Reconfigured home buyer tax credit