Do I Qualify for the Tax Credits Expiring June 30, 2010?

Please do not make purchasing decisions based on assumptions that you will qualify for any tax credits based on reading the following. We are not accountants. Read through the information that follows, as well as that provided by the other informations resources we've provided on this site, and then discuss this information with your accountant. You have too much at stake here to rely on any one source of information on this issue!

There have been three programs providing tax credits to home buyers in recent years, one governing sales in 2008, one governing sales from January 1 of 2009 through November 6th, of 2009, and one governing sales from November 7, 2009 through June 30, 2010.  The following are the rules for the latest program.

If, by April 30, 2010, you have a binding contract to purchase a home that will serve as your primary residence, and if you close on that purchase on any date from November 7, 2009 to June 30, 2010, you may qualify for a tax credit.   The home you buy may be a single family house, condo, townhome, co-op, houseboat, mobile home, or duplex, triplex, or fourplex.  These tax credits are a gift that you can use to reduce the amount of taxes you owe or, if you owe no taxes, a gift you can receive in the form of a tax rebate check.

A “first time home buyer” is an individual or a married couple who have not owned a primary residence during the three year time space prior to closing on the purchase of a new home.  This “first time home buyer” can claim a credit of up to $8,000, or 10% of the new home’s purchase price, whichever is less. 

A “long-time owner and resident” is an individual or a married couple who have both owned the same home and lived in that home as a primary residence for a time span of 5 consecutive years during the 8 year time span that ends on the date the new home is purchased.  A “long-time owner and resident” can claim a credit of up to $6500, or 10% of the homes purchase price, whichever is less. 

Ownership of investment properties or vacation homes does not affect qualification for either credit, nor does the ownership of a primary residence that is located outside the United States.  A “long-time owner/resident” does not have to sell or transfer their prior home to qualify for the credit.  If a duplex, triplex or fourplex is purchased, the credit cannot exceed 10% of the value of the unit that the buyer actually resides in.   If the property is sold or transferred within a 3 year time span after the purchase date, or if you or your spouse move out of the property during that time frame, all or part of the tax credit  will have to be repaid.

To qualify for either credit, the following conditions must also apply:

• You must be a citizen or resident alien of the United States and the home purchased must be in the United States. 
• Single taxpayers can qualify for the full credit with adjusted gross incomes of up to $125,000 and married couples can qualify with adjusted gross incomes up to $225,000 qualify.  Taxpayers earning up to $20,000 over these limits will qualify for a partial credit.
• You (or your spouse) must be at least 18 years of age on the date of purchase.
• You must not qualify to be claimed as a dependent on another person’s tax return, whether you actually are claimed as a dependent on that return or not.
• You must buy the home from someone other than your (or your spouse’s) direct lineal ancestors or decendents including grandparents, parents, children or grandchildren.
• The property must be purchased, not acquired as a gift or inheritance.
• The purchase price of the home cannot exceed $800,000.

Marital status is critical to determining whether you qualify for either of the credits.  If you are married at the time of the purchase, you and your spouse must both fully qualify in the same way for the same credit, or neither of you will qualify.  To qualify for the first time buyer credit, neither of you may have owned a primary residence in the past three years.  To qualify for the long-time owner/resident credit, both of you must have owned and lived in the same primary residence for 5 of the past 8 years.  If spouses are married but living separately, and one has owned a home in the past three years, neither will qualify for either credit, since one is not a first time home buyer and the other is not living in the primary residence.

In contrast, where two or more unmarried people purchase a qualifying home together, they may qualify for either credit as long as one or more of them qualifies.  The credits may be allocated to the buyers in any manner they choose, as long as no portion of the credit is allocated to a non-qualifying buyer and as long as the total credit allocated doesn’t exceed the $8,000 and $6,500 limits.  Thus, a parent and child can purchase a home together and the child can collect the first time buyer credit even though the parent currently owns a primary residence or has income in excess of the qualifying limits.  Similarly, an unmarried couple can qualify for the long-time owner/resident credit even if only one of them has owned and lived in the prior primary residence for the required 5 year time span.

Members of the military, Foreign Service, and intelligence communities who are on qualified official duty outside the United States may have an extra year to contract on a home and buy it.  They may also be exempted from requirements to repay the credit if they sell their home or move out of it in connection with required duty assignments.