Your Tax Questions Answered
The Home Buyer Tax Credits Are Hot
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
December 16, 2009
QUESTION:
I was wondering if you could clear up my confusion on the new $6,500 tax longtime homeowner credit. I purchased a home in April of 2004 and I still live there today. I got married in August of this year, and my wife has never owned a home. We are looking to buy a house and keep our current condo as a rental. Would we qualify for the $6,500 credit?
My impression is that we wouldn’t since the requirements state that both spouses need to qualify. She would qualify for the first time home buyer’s credit, I would qualify for the longtime homeowner credit, but since we are married, we don’t qualify for either now? That is very frustrating, and I hope that my understanding is incorrect.
We fall well within the income limits, and we are expecting our first child, so my wife will not be working much longer (at least that is the plan). What if I purchased the new house in my name only? Would I qualify for the credit? Is there any way we can qualify for either credit?
KEVIN ANSWERS:
Don’t worry. You’ll qualify for the $6,500 credit. You are correct that your wife loses the right to the first-time buyer credit because you are married. The law says that the buyer (and his or her spouse if married) must not have owned a home for three years to qualify for that credit. But, the long-term resident credit that you have owned and lived in a principal residence for five of the eight years leading up to the purchase. You passed the five year mark last April, so you qualify for the $6,500 credit…and can claim the full amount, whether you buy the new home alone or as a joint owner with your wife.
QUESTION:
I sold my house of 5+ years of living there continuously in August 2009 due to a job transfer. I also purchased a new home in August. Does this mean I don’t get to take advantage of the credit since I closed prior to 11/7? If so, this is just another example of the incompetence and lack of concern of senators and congressmen. Do you know if it is retroactive in any way?
KEVIN ANSWERS:
Sorry, but no. The long-time resident’s credit is only available for purchase on or after November 7. Tax incentives are rarely made retroactive and I have heard nothing to suggest any change will be made in the effective date.
QUESTION:
If I purchased a 50% interest in a house that was already owned by the other party (unrelated, unmarried) and the house as a primary residence, do I qualify for a any portion of the 2009 tax credit. A new mortgage and title work was redone to show my name as co-owner, and I paid all the points on the transaction. I have never owned a residence before.
KEVIN ANSWERS:
I think you’d base your first-time buyer credit on 10% of the price you paid for your interest in the home. Although I don’t believe the IRS has specifically addressed the situation you outline, the fact that the seller is not related to you and that you will make the home your principal residence appears to meet the law’s requirements.
QUESTION:
I purchased a newly constructed home this month – but already owned the lot. Can I take the first time home buyer credit – even though construction started before November 6th? Also, I did own a home for over the past five years – but owned it with my ex-wife. She got the house, so I built a new one. The construction has just been completed and I’m ready to move in.
KEVIN ANSWERS:
Unless you sold or otherwise gave up ownership of the home you owned with your ex-wife more than three years before you move into the new home, then you don’t qualify for the first-time buyer credit. The key is that you did not own a principal residence during the previous three years. However, if you owed that home for five of the eight years leading up to the time you move in to the new home (that’s how purchase date is defined for a newly constructed home), then you could qualify for the long-time residents $6,500 credit.
QUESTION:
I was married for 22 years. My ex and I owned a house for over 18 years. Our divorce was final in mid 2007. I am buying a house of my own in December of 2009. I signed a 'quit claim' to remove my name from the deed at the same time our divorce was finalized.
Given that it has been less than 3 years that I have not owned a home, I do not qualify for the first-time buyers credit. But since I did own a house for more than 5 years, Do I qualify for the $6500 tax credit?
KEVIN ANSWERS:
Yes. It appears that you qualify, unless your income is too high. The rule says that if you continuously owned and used the same residence as your principal residence for five of the eight years leading up to the purchase of the new home, then you can qualify for the $6,500 credit. Assuming you lived in the house up to the time of the divorce, you meet that requirement.
QUESTION:
We are planning on building a new home in spring of 2010. Would we qualify for the tax credit if we signed a contract with our builder and started construction before the April 30, 2010 deadline?
KEVIN ANSWERS:
The rules state that if you build a home, the purchase date is considered to be the date you move in to the new house, not the date you sign a contract to build. One question that is unclear is whether, if you sign a contract by April 30, if you could qualify for the credit if you move in before July 1. The law says that if you sign a binding contract to purchase a home by April 30, you have until June 30 to close on the deal. The way the law is written, though, it seems that the extra two months allowed for closing apply only to the purchase of a home, not the building of one…if that is correct, then you’d have to move in to the newly-constructed home by June 30 to qualify.
QUESTION:
Hello, my wife and I recently closed on our home in June of 2009. She has owned a home in the past that was foreclosed upon. The date of the sheriff's sale on that home is April of 2006. I on the other hand have never owned a home. Our recent home purchase has both of our names on the deed. I assume since I have never owned a home and she is more than 3 years removed from the sheriff's Sale on her old home that we qualify for the first time homebuyer credit. Is this correct?
KEVIN ANSWERS:
Sounds like you qualify as long as your income isn't above the phase out level. For deals closed before November 7, the right to the credit gradually disappeared as adjusted gross income (that’s basically your income before subtracting your personal and dependent exemptions and your standard or itemized deductions) rose between $75,000 and $95,000 on single returns and between $150,000 and $170,000 for married couples who file joint tax returns.
You are correct that a first-time home buyer is someone who has not owned a home in the three years leading up to the purchase of the new home. Since your wife ceased owning the home she lost to foreclosure in April of 2006 and you closed on the new home in June of 2009, you pass the three-year test.
You can either claim the credit when you file your 2009 return or, to get your money faster, you can amend your 2008 tax return and get an $8,000 refund from the IRS (assuming your qualify for the full credit, which is based on 10% of the sales price of the home, up to a maximum credit of $8,000).
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Reader Comments (21)
Posted by: Bill at 12/17/2009 04:34:46 PM
Regarding building a new house, I'm not sure I'm reading you answer correctly. Should the last sentence read "... then you’d have to move in to the newly-constructed home by APRIL 30 to qualify?"
Posted by: kevin mccormally at 12/21/2009 09:05:22 PM
Kevin McCormally of Kiplinger her with an answer for Bill. You're right, Bill, I meant to say it appears that you may have to move into that newly built by April 30 to qualify. Sorry for my error.
Posted by: Gina at 12/22/2009 01:43:38 PM
On the 1st question above, it states; "We are looking to buy a house and keep our current condo as a rental. Would we qualify for the $6,500 credit?" So, they do not have to sell the current house, they can use it as an investment property & still claim the $6500? Thanks!
Posted by: Rich at 12/23/2009 05:23:41 PM
Regarding the question from the divorcing man. So, if a couple divoces and one spouse goes and buys a replacement home, and barring all else qualifies for the credit, they are entitled to the whole $6500? Or would it be half of that? I can't imagine that if they both went and bought replacement homes the government would allow $13,000 in credits.
Posted by: Terry Estrada at 12/28/2009 07:32:47 PM
My (son) doesn't have credit history to purchase a home (even though he does have enough for a down payment). It would be great if he could take advantage of the first time owner credit. Can I loan him the cash outright to purchase a condo without bank financing? I would expect him to pay me back the money but would not necessarily charge interest. It would not be considered a gift. Would that adversely affect my taxes?
Posted by: Jeff at 12/30/2009 01:14:03 PM
Regarding the first question about a long term resident and a spouse that recently moved in, I believe the answer provided is in conflict with what the IRS site has posted: Q. I am a long-time resident (have owned and used my current home as a principal residence for five consecutive years out of the eight-year period ending on the date of purchase of the new residence) but my spouse has lived there for only three years. Can we qualify for the long-time resident homebuyer credit if we purchase a new principal residence? A. No. Both spouses must have owned and used the same previous principal residence for five consecutive years out of the 8-year period ending on the date of purchase of the new principal residence to qualify for the credit. (12/14/09) If the IRS version is correct, I think that this tax credit will miss a lot of couples that have been married less than 5 years. This should be a key group as the poster indicated because they are looking to move on with an expanding family. This just does not makes sense to me. Essentially, both would qualify for one of the credits if single but because they are married, they cancel each other out.
Posted by: Christy at 12/30/2009 11:01:17 PM
My husband and I have lived in our house for 9 years. We re-financed our house in April of 2009. When we refinanced the house we put it in his name alone. (Because I am self employed) Can we use any of that credit on our taxes? Thank you,
Posted by: rick robinson at 01/18/2010 12:01:45 PM
I lived in our house for 4 plus years, but was divorced prior to reaching the fifth year and my spouse received the house in the divorce. Do I qualify for the $6500 credit on a new purchase if I meet the other qualifications?
Posted by: kevin at 01/21/2010 05:56:56 PM
I bought a home on contract in 2009 and haven't owned a home for more than 4 years, would I qualify for the tax credit?
Posted by: Deb at 01/26/2010 09:09:14 PM
I purchased a home in 2002 which lived in for 3+ yrs then and sold it in 2005. I closed on the house sale in 2005 and closed on the new house purchase in the same month of 2005. I lived in this house 4 yrs 3 mons. and sold it on Oct. 4, 2009. There was never a break in home ownership. I moved from one home directly into the new home. So I have owned a primary residence 5 consecutive yrs. Does this qualify me for the $6500 Tax credit on the home I will be purchasing in Feb. 2010?
Posted by: Carter at 02/20/2010 10:18:32 PM
My wife and I sold our home of 10 years and bought another home in early May 2009. Is it correct to say, that because of the November 7, 2009 when the bill was signed. . . we are not eligible for the long-term homeowner tax credit?
Posted by: Randy at 03/02/2010 10:08:42 AM
Regarding 6500 tax credit. I meet all qualifications for the credit. Am purchasing a RV fifth wheel travel trailer for my permanent residence and wish to take the 6500 credit. My research says a travel trailer is acceptable as long as it is attached to land. A houseboat is also legal, but perhaps only attached to land by rope. What kind of attachment is involved?
Posted by: kim grant at 03/09/2010 10:19:56 AM
Me and my husband bought and owned a house from 1997 to Dec. 2005. In 2003 we took out a loan for a piece a property that we started building on at the start of 2006. A construction loan was taken out in March of 2006 and converted to a convential loan in Oct. of the same year. I am getting a diviorce and my husband is staying in the above mentioned home. Do I qualify for any of the tax credits.
Posted by: Jon979 at 03/18/2010 04:55:25 PM
Kevin, You say that a purchase of a home is considered completed when you move in to your new home. You also say that you have until June 30th to close the deal. There needs to be some clarification on what "close the deal" really means. Before a builder can begin construction the homeowner must be "construction closed." This is where money is released to build, and draws are taken as the work is completed. Without this construction close the builder would have to front all of the cost for building. Am I right in assuming that as long as the homeowner is construction closed by June 30, he/she would qualify for the tax credit?
Posted by: Andrew at 03/28/2010 08:38:39 PM
As part of a marriage separation agreement, I paid my ex wife $28,000 for her 50% interest in our marital home, which we both lived in from 2/2002 until 10/2009, and I still live in. We filed a quit claim deep in January 2010. Am I eligible for the long-term resident credit?
Posted by: Rob at 04/05/2010 06:09:30 PM
regarding building a new constructed home. Signed a contract in feb 2009 and closed on the construction to perm jan 2010. however, moved in the home may 2009. do I qualify for the $ 6500.00?
Posted by: stewart at 04/29/2010 01:20:12 PM
We purchased a foreclosed home and did a gut rehab. The purchase price was 20K but construction costs were around 140K. Purchase and rehab construction costs were financed under one mortgage loanat the time of purchase. Can we use construction costs to qualify for larger credit or are we limited to the cost of the home purchase?
Posted by: Steve & Juliu at 05/01/2010 07:53:26 AM
In mid march of 2010 we ordered a 60,000 dollar RV, do we qualify for the 6,500 dollar tax credit?
Posted by: Scott at 05/15/2010 01:45:08 AM
Me and my wife have lived in our mobile home for 8 years. We have been married for almost 5 years. I put her on the title in 2006. We have lived there 5 consecutive years just not married. Do we qulify for the 6500.00 long time resident housing tax credit.
Posted by: Amanda19 at 05/25/2010 04:56:10 PM
My ex husband and I bought a house in 2003. I moved out of the house in 07 cuz I remarried to a military member, the house finally foreclosed in 08, My husband and I bought a new house this past nov, He put it in his name, I have proof that I owned the other house, for 5 years and have sent of the paperwork to the irs, but im confused, my husband would get the 8,000 and I would get the 6,500 but because we are married, we get nothing??? if the Irs was going to deny the paper work wouldn't they do it right away instead of asking for more paperwork? we were told that we would get the 6,500
Posted by: Steve at 06/17/2010 01:36:15 PM
My wife has owned her home for eight years now and we have both been living there. I am not on the title or the mortgage of that home. Recently, I purchased a new home but she is not on the title or the mortgage of that one. We do file taxes jointly. Would we be eligible for the 6500 tax credit?