Some welcome good news:

Yesterday, President Obama signed a bill extending and expanding homebuyer tax credits. The bill is effective immediately and extends the $8,000 first time homebuyer tax credit deadlines to April 30, 2010 for contracts and June 30, 2010 for closings. The bill adds a new $6,500 tax credit for homebuyers meeting the same deadlines who have resided in their principal residence for at least 5 of the last 8 years. Finally, income eligibility limits have been increased to $125,000 for single filers and $225,000 for joint taxpayers.

I’ve summarized the credits and eligibility criteria here:

Tax Credits Explained: The tax credits are applied for by homebuyers when filing tax returns. The tax credits reduce tax liability to the federal government dollar for dollar. If no taxes are owed, the IRS will issue a check for the amount of the credit. The credits in the current bill do not need to be repaid, however, homebuyers must maintain the home as their principal residence for at least 3 years.

First-Time Homebuyers: As under the initial tax credit, first-time homebuyers are deemed to be people who have not owned a principal residence within the last 3 years. For a married couple, if either spouse has owned a primary residence in the last 3 years, neither would qualify. If an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible. The credit is calculated as 10% of the purchase price of the home up to $8,000. Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount. Unmarried purchasers of a single home may split the eligible credit amount.

Current Owners: Current homeowners who have owned and occupied their principal residence for 5 consecutive years in the last 8 years may be eligible for a tax credit up to $6,500. This aspect of the bill should appeal to the so-called “trade-up” market.

Deadlines: For either credit, contracts need to be effective not later than April 30, 2010 and close not later than June 30, 2010.

Income Limitations: For either credit, single tax filers who earn up to $125,000 are eligible for the total credit amount and those earning up $145,000 can receive a partial credit. Joint filers who earn up to $225,000 are eligible for the total credit amount and those who earn up to $245,000 are eligible for a partial credit. Taxpayers earning in excess of $145,000 and $245,000, respectively, are ineligible for either credit.

Purchase Price Limitation: The maximum purchase price for a home in an eligible transaction is $800,000.