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November 10, 2009

More home buyer tax credits answered

Personal finance columnist Eileen Ambrose, part of the muscle behind The Baltimore Sun's Consuming Interests blog, answers a variety of questions today about the new repeat home buyer tax credit and the revised credit for first-time buyers.

You can read her column about the home buyer tax credits here, with readers' questions and answers from specialists such as Mark Steber, chief tax officer of Jackson Hewitt Tax Service. A taste:

I purchased a house in early 2005 that my wife and I are now selling. Can I obtain the new $6,500 credit? I'm close to the five-year mark but will be a couple of months off.

Steber says "The code is clear about the five-year timing. Unless you can put off the closing for another four months, you will not currently qualify for the credit."

Looking for more information? See some recent Wonk posts on the subject, including which potential repeat buyers qualify.

Comments

I am currently going through a divorce (not final). My wife and I are separated and she is still living in the marital home (which we have jointly owned for more than five years). I am going to purchase a new home for myself within the next month. After I purchase the new home for myself, she is either going to refinance the marital home and I will execute a quitclaim deed to her or we will sell the marital home. Is the $6500 tax credit available to me (I would hope to apply it to 2008 taxes).

TR, it sounds like you would qualify. (The reporting I've seen suggests you don't actually have to sell your current primary residence, you just have to be buying a new primary residence.)

Do you have to be a current homeowner to qualify for the revised credit? What if you currently do not own a home, but previously owned one within the last 3 years?

AG, the guidance I got from a finance committee aide is that someone who owned a home for five consecutive years in the last eight and sold it (say, last year) will qualify if he or she now wants to buy.

Individually, I qualify as a repeat homebuyer and my wife qualifies as a first-time homebuyer. If we purchase a property together, do we qualify for the repeat homebuyer credit?

If I sold my house of 13 years and purchased my new home lAte April of 09. Is this credit available to me or only to buyers from this date to the end date?

I lived in my house for over 5 years. We sold the property on November 6th and also closed on a new property on November 6th. Will we qualify for the extended credit?

You have to be purchasing a property after Nov. 6 to be eligible. So AWS and Trevor, it sounds like neither of you qualify. (For Trevor, it came down to one day too soon.)

My husband has owned our current home for 6 years. We just got married 2 years ago and I've never owned a home. We did not change the deed to include my name. We did filed taxes jointly for the past two years. We are set to close on the sale of our current home/purchase of our new home on Nov 13. Do you think we qualify?

Katie, this is the million-dollar -- well, OK, $6,500 -- question. The IRS hasn't weighed in yet, so I don't know if spouses will qualify for the repeat-buyer tax credit if only one of them meets the ownership requirement. If I had to guess, I'd say yes, but we'll have to wait and see.

We just closed on our house on 10-30-09. Is this saying that we are just out of luck? Do we have any options that might be cost effective to get the credit?

I lived in a previous residence for more than 7 years before getting a divorce. She maintained the marital residence and I signed a quitclaim deed so that she would not have to re-finance. I then bought a separate property immediately after the divorce in June, 2005. I am looking to buy a different residence in the next month or so. Do I qualify for the tax credit?

Scott, the legislation says repeat buyers must have lived at least five consecutive years in the same residence during the past eight years. You'd have to be in your current place five full years before you'd qualify.

The law says buyers have to sign a contract by April 30 and close by June 30, so it sounds like you might be able to swing it if you schedule your closing for whatever day in June gets you past the five-year requirement. But don't take my word for it.

Regarding the repeat buyers program, is there a time frame requirement for living in the new residence?

Joe, good question. The legislation says homeowners must own and live in the newly bought residence for the following 36 months. Otherwise, you've got to pay the credit back.

I bought my house in 07 september, will I be able to get a Tax Credit for $6500?

I just sold my house which I lived in for 3.5 years and had a previous house i lived in for 2 years. I don't think I qualify since it was 2 different homes and not 1 consecutively for 5 years. but i had to sell my first home due to job relocation. is there any exemption for job relocation?

I'm sorry, lynn, I haven't seen or heard anything about exemptions except for military.

Here is my time line 2000-Purchased home with ex (then wife) 2005- Separated and I moved out, while we still both owned the home. 2007- Ex Purchased the marital home. 2009- I am closing on new home in Dec. Am I eligible for either credit?

David, I hate to say it, but you might not be eligible for either credit.

Here's what the legislation says about the repeat-buyer credit: An individual must have "owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence." (Emphasis mine.)

And the IRS has said of the first-time buyer credit, "marriage (and legal separation) imputes ownership of a previous home upon the other spouse."

Thanks Jamie.
So let me throw a wrench into the equation. If legal separation imputes ownership of my previous home to my spouse (legally separated in July 2005) and I moved out then. Would that not qualify me for the first time home buyers credit ( not owning a principle residence for 3 years..... since in the eyes of the IRS, ownership went to my Ex in 2005? Crossing my fingers here.

David, I should have been clearer -- the IRS is imputing ownership of a principal residence to YOU, even though it wasn't your principal residence after 2005. At least that's how I'm interpreting this Q&A from the IRS site:

Q. I have been estranged from my spouse for over three years and file married filing separate. I don’t know if my spouse has owned a main home in the last three years, but I have not. If I buy a house in 2009 that otherwise qualifies for the first-time homebuyer credit, can I claim the credit?

A. Section 36(c)(1) requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. If your spouse has not owned a main home in the last three years, then you may claim the credit.

Thanks again.
Okay last question....I promise. Since legally separated in 2005 and out of the principle residence then, I have filed my return as a single unmarried taxpayer. I claimed no home owners interest deduction on my returns and I have rented a place as my primary residence since 05. I divorced in 2007. While my Ex stayed in and eventually purchased the principal residence, my assumption (i know.. that assume thing) is that she claimed ownership once I moved out and we were legally separated ,which in the eyes of the IRS is the same as divorced. Any changes based on those facts? Thanks for all you advice.

David, you're going to have to talk to a tax expert. But I don't see how your situation really differs from the Q&A scenario above. And the IRS is saying that -- for purposes of the tax credit -- legal separation is the same thing as married, which means that you don't qualify for the first-time credit. But hey -- a tax expert might think differently.

Here's another thing to consider: The credit doesn't expire until June 30, meaning that's the last day to close. Did you sell the house to your wife in the first half of 2007? Then you'd be a first-time buyer on the three-year anniversary of that date, and you could close on a new home with no gray-area concerns.

We sold our home in late 2007 and relocated across the country and have been renting since ... we are considering purchasing a home in 2010. Will we qualify for the buyers credit if we buy in April 2010 but sold the previous home in August 2007?

Jennie, you wouldn't qualify as a first-time buyer because you'll be getting a new property less than three full years after your previous one. But you might be eligible as a repeat buyer. Did you own your previous home for at least five years?

Please clarify this response you provided: "AG, the guidance I got from a finance committee aide is that someone who owned a home for five consecutive years in the last eight and sold it (say, last year) will qualify if he or she now wants to buy." Would this still be in the case if, in 8 years, a person owned for 5 consecutive years, but then owned a subsequent house for only 3 years? Or does the 5-yr requirement apply only to the most recent home owned?

I bought my current home in 2002 and have lived in it ever since. My husband (fiancé at the time) moved in with me 5.5 years ago. We got married 4.5 years ago. My husband's name is not on the mortgage nor is it on the deed. We are closing on our new home on Dec 15th. Could you please clarify if are eligible for 6500 credit as repeat buyers? (my concern is that my husband has lived at the home and paid it off with me for 5.5 years total but for only 4.5 years as married couple). Thank you!

Kristin, the five-year requirement does apply to the most recent home owned. The legislation says the credit for repeat buyers can go to "an individual (and, if married, such individual's spouse) who has owned and used the same residence as such individual's principal residence for any 5-consecutive-year period during the 8-year period ending on the date of the purchase of a subsequent principal residence."

Anna, I asked the IRS for guidance on that point but was told the agency is still working through the details and will answer questions on its website when it can. The agency said earlier that you can only get the first-time buyer credit if both spouses qualify, but it's unclear to me whether it will say the same for the $6,500 repeat-buyer credit. See my answer to Kristin (just above) for the text of the legislation, which does refer to spouses.

I sold my home in March of 2007 after living in it for 15 years. I have been renting every since. I built a new home and closed on November 13, 2009. Would I qualify for the $6,500.00 tax credit?

Lashawn, it sounds like you qualify.

Can I qualify for the $6500 tax credit if the home that I lived in for 5 of the past 8 years was foreclosed on and I am able to get another loan?

I don't know, Mark. At first blush it seems like you would qualify, but I haven't seen this one addressed before.

It seems to be the question that eludes everybody. I can't get in contact with anyone at HUD and I get different answers from people. Long story short, I lost my job and ended up in the hospital. Filed chapter 7 and included house. It was all discharged Feb. 2008. House sold at auction that year. I bounced back and have reestablished. Thanks for reply.

Mark, it's really a question for the IRS (or a tax professional, but the IRS is the final authority). I'll forward it to the local IRS spokesman to see if he can answer it.

I'm glad you've bounced back!

I will ask the person who prepares my taxes, but I will trust the IRS answer you receive more. This also depends on if the local Mortgage person is correct in saying that the FHA will approve me a loan after two years from the discharge of the 7 with the house included. Thank you very much for taking the time and I look forward to what the IRS says.

If i bought a rental property in june 08 that is not my primary residence. Can i still get the $6500 credit?

Mark, we haven't heard from the IRS, but colleague Eileen Ambrose sent your question to a tax expert. The answer seems to be that you're eligible. Here's the link: http://bit.ly/4TaXds

Christian, the $6,500 credit is only for homeowners buying a new primary residence, and also only for those buying after Nov. 6 of this year. So -- nope, not even close. Sorry.

I sold my house this summer that I only owned for 2 years. I sold because my fiance was military and I knew we were getting relocated. We were married in November, relocated last week and will be closing on a house the end of this week. Obviously, I dont qualify for the first time home-buyer credit. However, I am not on the loan. My husband bought the house in his name only, however I believe the state we are purchasing in requires my name to be on the title. Can he qualify for the first-time credit since it was NOT a joint purchase?

Samantha, I feel for you, but I'm pretty sure he wouldn't qualify. The IRS has said that both spouses must qualify in order to get the homebuyer credit. That's even true in cases where spouses are estranged and one buys a home on his or her own (http://www.irs.gov/newsroom/article/0,,id=206294,00.html).

I sold my home in late June 2007 and have been renting since that time. If I buy a home before April 30th, but don't close until late June (past the three-year-mark) will I qualify for the 8K tax credit? Thanks.

Allison, that's a really good question. The IRS has said in the past -- when there was just the single deadline for the first-time buyer credit -- that the key date was closing. But with this double deadline of contract and closing, I'm not certain. I suspect the IRS would use the closing date for the qualification calculation, but that's just a hunch.

Should it turn out that the agency is using the contract-signing date, you'd still qualify for the $6,500 repeat-buyer credit if you bought your previous home in or before late June 2002.

I purchased a home with my husband in August of 2001 and lived there until September of 2007 when we seperated. The divorce was final in May of 2008 and as part of the divorce settlement, he bought me out and refinanced the home. I have rented since October 2007 and am now buying the house back from my ex-husband. Would I qualify for the $6500 tax credit?

Well, the IRS says you can't qualify for the credit if you buy from "a close relative," including "your spouse, parent, grandparent, child or grandchild." But I don't know how the agency views ex-spouses. I'm afraid this is a question for a tax expert, Tracy.

In May 2008, I purchased a home and received the $7,500 tax credit. In April 2009, I sold that home to my fiance (who was "unrelated" to me at the time because we were not married yet), and he received the $8,000 tax credit on his 2008 taxes. He officially moved in after we were married and we now both currently live in this home.

Now, we're trying to figure out how to file our 2009 taxes. Jointly or separately? Also, we're prepared to pay back my $7,500, but because I sold my home to him for $10,000 less than what I paid for it, the tax form says we do not have to pay it back at all.

What should we do?

Haven't a clue, Rosie -- this is definitely a question for a tax expert, not a housing-market reporter. Good luck.

I can't find an answer to this one anywhere...neither my husband nor I have ever owned a home before, so we qualify as first time homebuyers. We filed our taxes jointly for 2009, but when it came to buying our house, my husband got a new job which would have caused us to push closing back a month (and therefore miss the tax credit deadline), since we were using FHA financing and they require a 30 day work history. I was able to qualify for the mortgage on my own, so we went ahead with our purchase with only myself on the mortgage and the intent to add him after he gained a 30 day work history. Do we still qualify with our taxes filed jointly but only one of us on the settlement statement?

Hi, Jamie -- I don't think you're going to have a problem. I've seen no requirement that both spouses put their names on the purchase documents, only that both spouses qualify (as you do). In any case, when one spouse owns a home, the IRS "imputes" ownership to the other spouse as well.

We bought our first home in 2000 and sold it in 2006, right away going in to our second home which we sold in 2010, do we qualify for the credit? We've been homeowners for the past 10 years in two differnet houses. Our real estate agent says we should qualify...

Samantha, your agent is misinformed -- sorry.

In order to qualify for the $6,500 repeat buyer credit, you (and your spouse, if you're married) must have owned and lived in the SAME home for at least five consecutive years of the past eight, as measured backward from the purchase of your new home. (I know, it takes a moment to wrap your mind around that rule.) You were in your first home for four of the last eight years and your second home for the other four.

Here's where the IRS addresses this issue: http://www.irs.gov/newsroom/article/0,,id=206291,00.html

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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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