On June 30, Congress passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010. The Act, which is now cleared for the President’s signature, provides first-time homebuyer credit relief to taxpayers who couldn’t meet a key June 30, 2010, closing date.

Under prior law, both the regular Code 36 first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents generally expired for homes purchased after Apr. 30, 2010. However, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010.

The Act amends Code Sec. 36(h)(2) to provide that if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before Oct. 1, 2010. Thus, this extension allows homebuyers who signed a contract no later than the April 30th deadline to complete their closing by the end of September.

The three-month extension of the closing date provides tax relief for those who couldn’t close on time because of backlogs at lenders and federal programs involved in homebuyer loans. In the words of the Act’s supporters, the three-month extension “will give time for all the new mortgages to be processed and not punish those homeowners who have been delayed through no fault of their own.”

The cost of the three-month closing reprieve is fully offset with revenue raisers, including these tax changes: expanding the bad check penalty under Code Sec. 6657 to cover electronic payments, effective for instruments tendered after the enactment date; and providing for disclosure of prisoner return information under Code Sec. 6103(k)(10) to state prisons, effective for disclosures after the enactment date.

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