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November 17, 2009

Do you have to sell to get the repeat home buyer credit?

Many of you have wondered if you have to sell your current home in order to qualify for the $6,500 repeat-buyer tax credit on a new-home purchase. The Internal Revenue Service weighed in on that question today, and the answer is no:
Q: I’m already a homeowner. If I buy a replacement home to use as my principal residence, do I have to sell my home to qualify for the homebuyer tax credit?

A: If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home to use as your principal residence. You must buy, or enter into a binding contract to buy, a principal residence on or before April 30, 2010 and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the replacement home is purchased.

I'm still waiting for an answer to the question that many of you have posed: Is a couple eligible for the $6,500 if only one of the spouses meets the five-year ownership requirement?

Looking for more information about the repeat-buyer tax credit? This link will take you everything I've written on the topic. And here's the link for blog posts on the first-time buyer credit.

Posted by Jamie Smith Hopkins at 5:20 PM | | Comments (21)
Categories: Repeat buyer tax credit
        

Comments

Thank you Jamie for the info on the replacement home purchase. I though that was the case (that the current residence didn't have to be sold) but it's nice to see it confirmed by the IRS.
BTW, www.federalhousingtaxcredit.com/faq2.php does respond on the answer for the definition of a repeat home buyer. Question #2 reads as: What is the definition of a move-up or repeat home buyer? Answer posted is:
The law defines a tax credit qualified move-up home buyer (“long-time resident”) as a home owner who has owned and resided in a home for at least five consecutive years of the eight years prior to the purchase date. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Repeat home buyers do not have to purchase a home that is more expensive than their previous home to qualify for the tax credit.

I would assume this to mean both husband and wife have to pass the "test" in order to qualify the tax credit.

Thanks for the link, Andy -- that's a good find. The National Association of Home Builders runs that site. While it's not the voice of authority on this subject that the IRS is, it's also not in the NAHB's interest to have fewer people qualify for the credit, so I find its read of the law illuminating. (It's true that the legislation lays out the timeline required for an individual "and, if married, such individual's spouse.")

Jamie,

Thank you so much for keeping us up-to-date with the latest information on the homebuyers' tax credit.

Glad to do so, Richard.

I closed on October 30th, but did not officially move in until Nov.8th due to the fact the previous owner needed a place until his new place was ready and our sales agreement said he did not have to be out until Nov 30th. I was wondering if I would still be eligilble for the tax credit since we didin't claim residency until Nov.8th

Mike, the IRS has said before that the key is when you close. The one exception is for buyers of newly constructed homes -- then it's the date of occupancy that matters.

I know there is no answer yet about a married couple qualifying for the repeat home buyers tax credit... But I was wondering what you think about the idea.

Do you think it would make sense for one spouse to technically qualify for the first time home buyers tax credit, and another spouse to technically qualify for the repeat home buyers tax credit, and because of that, they both don't qualify for either!!!

I understand why this new tax credit is not retroactive. And I even understand why married first-time homebuyers don't qualify if their spouse is a home owner. But I DON'T understand why repeat home buyers could be disqualified because of their spouse's lack of home ownership. That just doesn't make sense to me!

Just want to confirm that I am eligible for the $6,500 tax credit. I lived in and owned the same home from 8/02 thru 8/08 (6 years) and rented from 9/08 thru 11/13/09 at which time I closed on a townhome. Per everything I have read, I would be eligible for the credit. Thank You.

Kate,

I absolutely agree with the points that you made.

Unfortunately, our lawmakers often don't think through such technicalities when drafting or amending a bill. I think it's likely that they simply took the verbiage that existed from the first time homebuyer language and basically copy/pasted it into the repeat buyer clause.

Hopefully the language is loose enough for the IRS to interpret it favorably to married couples whom have one party that has been a longtime homeowner.

Am I eligigle for the newer tax credit if I sell my house I purchased in 2000 and purchase a new house in Dec, 2009? I earn under $125,000 in 2008 income tax year.

Question - in regards to the "5 year period" - we are looking at another house already and the previous house may close in the near future in which it was resided for 4 years and 49 weeks, based on the closing date - from what I understand, we would be short by 3 weeks unless the closing for the prior residence is extended 3 weeks - Am I correct - thanks, Jeff

Kate, I hear you -- and if it makes you feel any better, I've been encouraging/prodding the IRS on a pretty much daily basis to rule on this issue.

LA and Wanda, it sounds to me like you both qualify.

Jeff, that's my read on it. Tax experts have said "five years" means at least five full years, so if you want the credit, you'll need to move the closing date to your five-year anniversary. Or perhaps the day afterward to be safe. You'll want to consult with an expert or experts to make sure you can do so without negative effects, and to double check that you do qualify for the credit.

Am I eligible for the $6,500 repeat buyer tax credit if I am meeting all requirements for the program and bought my new principal residence in August 2009. Does the repeat buyer tax credit start on Dec. 2008 or Dec. 2009? Folks who bought a second principal residence in 2009 did not help on the economy recovery? If so, are they eligible for the $6,500 repeat buyer tax credit?

Mohsen, the repeat-buyer credit is new and it is not retroactive. If you bought before Nov. 7, you are not eligible.

The first time home buyers credit its a great thing for our countries real estate market. We need a spark as a real estate market and this has helped alittle. I am glad they extended it.It has helped alot of people purchase a home that they probably wouldn't have.

I purchsed a 2nd house in August 2009, but I am still living in my old house bought in 1991. Will I be qualified for the repeat home buyer tax credit if I buy another (3rd)house and use the new house as a principal residence?

Jamie,

Thanks for the information. I am anxious to find out what you hear from the IRS as to a newly married couple who don't both meet the ownership test. My husband has owned the house we're living in for over 5 years so he would definitely qualify for the repeat buyer credit.

Mo, I think you would be eligible. Might not be a bad idea to check with a tax expert, but you do seem to meet the requirements.

Rachel, I reminded the IRS just today that many people really, REALLY want to know the answer. A spokesman there said he's posed the question to the powers-that-be and will let me know when he knows.

Jamie,

I meet all requirement for a Move-Up or Repeat Buyer, but I have a question about my current residence. My current principal residence was for sale and just went under a contract. Am I going to be eligible for the $6,500 Tax Credit if I sell my current principal residence and then buy a new pricipal residence before April 15, 2010? Please comment.

Yes, Nilou, it's perfectly allowable to sell first and buy afterward. In fact, it's the smart thing to do.

Well here is a good one for you.........My husband and I have been married 15 years. My husband added me to the deed of the home he had bought prior to our marriage some years ago. So I don't qualify as a first time buyer even though I personally had never bought a home! In addition to that, we bought a second home this year that has become the new primary residence. We closed on November 3rd so we don't qualify for that credit either! Thank you Senators and Congressman for absolutely NO HELP at all!

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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