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Home Buyer Tax Credit Frequently Asked Questions

Here are some answers to Frequently Asked Questions about the Home Buyer Tax Credit

First-Time Home Buyer Tax Credit Eligibility

Q. What are the basic eligibility requirements for a first-time home buyer?
To qualify for the first-time home buyer tax credit, you cannot have owned a home as your principal residence in the three years prior to closing.
Q. How much is the first-time home buyer tax credit?
The first-time home buyer tax credit is 10% of your purchase price up to $8,000.
Q. I bought a home once before, but sold it years ago. Do I still qualify as a first-time home buyer?
For the first-time home buyer tax credit, you qualify as a first-time home buyer so long as you have not owned a primary residence in the past three years prior to closing on your new property. So if you owned a home in the past, but sold it more than three years ago, you would qualify as a first-time home buyer.
Q. Can I qualify as a first-time home buyer if I rent my primary residence, but own an investment property or vacation home?
Yes, you could still qualify as a first-time home buyer. Even if you own property, you are still eligible if you have not used that property as your primary residence within the prior three years.

“Step-Up” or Long-Time Homeowner Tax Credit Eligibility

Q. Can I get a credit if I currently own a home?
To qualify as a long-time homeowner, you must have owned a home that you lived in as your personal residence for five consecutive years out of the previous eight years prior to closing.
Q. Can I get the tax credit if I lived in one home for four years, sold it, and then immediately bought and lived in another home for the last two years?
You would not qualify. In order to be eligible for the long-time homeowner tax credit, you must live in the same home for five consecutive years out of the last eight.
Q. Can I get the long-time homeowner credit if I otherwise qualify, even if I don’t sell my previous home?
Yes, the law does not require that you sell the home that you lived in for five consecutive years out of the last eight years. You can keep title to it. However, you have to make the qualifying home your principal residence, so you can’t live in the prior home.
Q. Can I get the credit if I owned one home for ten years, and my current home for three?
No, to get the long-time homeowner home buyer tax credit, you must have lived in your current residence for at least five consecutive years out of the last eight.
Q. Can I sell my current home, and buy a less expensive home, and qualify for the “step-up” tax credit?
Yes. The term “step up” is misleading, because nothing in the law requires that you have to “step up” in value. You do not have to buy a more expensive home. We try to use the term “long-time homeowner tax credit” to make it clear how the credit works.

Income Qualifications

Q. How much can I make and still qualify for the tax credit?
The tax credit is only available at certain income levels: up to $125,000 for single filers and $225,000 for joint filers. The income limits are the same for both first-time home buyers and long-time homeowners. If you make within $20,000 of those limits, you can still qualify for a partial tax credit. But if you make over $145,000 for single filers or $245,000 for joint filers, you are not eligible.
Q. How do I figure out my “modified adjusted gross income” or “MAGI”?
You really should talk to your accountant about it, but generally speaking, your MAGI is what we all colloquially think of as our “income” – wages, salaries, interest income, dividends, and capital gains. Your MAGI also includes certain foreign income, but very few people have that. Note that your MAGI will be reduced by certain deductions such as alimony, but not the ‘below the line” itemized deductions that are on Schedule A of your tax return. Since your MAGI is very close to the “adjusted gross income,” or “AGI,” you can check your last tax return to see what you make: the AGI is the last number on Form 1040or 1040A.
Q. How is the partial credit figured?
The partial tax credit is available for taxpayers whose income is within $20,000 of the income limits: so up to $145,000 for single filers and $245,000 for joint filers. If your income is within that “phase out range,” you get a partial credit based on how much of your income is within that range. For example, if your MAGI is $130,000 as a single filer, that means you’re $5,000 into that $20,000 range. That’s 25% of the range, leaving 75% still in the range. So you would get 75% of the tax credit you’re entitled to: $6,000 if you’re a first-time home buyer (75% of $8,000) or $4,875 if you’re a long-time homeowner (75% of $6,500).

Personal Requirements

Q. Can I get the tax return if I am not a United States citizen?
No, you must be a United States citizen to claim any type of credit. The only exception is for certain resident aliens. If you are a nonresident or dual-status alien, you do not qualify. If you are a resident alien, you may qualify under certain conditions. You should consult with your attorney about your eligibility. Remember, though, that you need to maintain your principal residence in your home purchased for at least three years, something that may be difficult if you reside in the United States under certain visa types.
Q. I don’t qualify, so can I buy a home for my 10 year old son, who would qualify for the credit?
No, to be eligible for the credit, the buyer must be at least 18 years of age, and cannot be a dependent on someone else’s tax return.
Q. Can I help my 21 year old son buy his first home, and let him get the tax credit?
Yes, nothing in the law requires that the home buyer use his or her own money to claim the tax credit. However, if you would not qualify, and you take part of the title to the property, you would not be eligible for the credit. Moreover, it might be difficult for your child to qualify for a mortgage if you are the only financially equipped person to make the purchase.
Q. Can I buy my 21 year old son his first home, and get the tax credit if he qualifies but I don’t?
No, if you’re going to own the home, you need to qualify. Moreover, you would need to live in the home anyway.
Q. How long do I have to live there to keep the credit?
You lose the credit if you sell or you move out of your home before three years. But you shouldn't be buying if you're planning on moving again in less than three years anyway.
Q. What if I live there for two out of three years? Can I keep 2/3 of the credit?
No, if you move out of your principal residence within three years, you have to pay the full credit back.

Property Requirements

Q. Can I get the tax credit if I am buying a condo or a coop apartment?
Yes, the IRS takes a very permissive view of what a “home” is under the legislation. Most property types you would consider qualify, including single-family homes, townhouses, condos, coops, multi-family homes. You can even get the tax credit for properties that are generally considered “personal property” such as houseboats, trailers, and affixed mobile homes.
Q. Can I get the credit if I buy a multi-family home and live in only part of it?
Yes. You can get the credit even if you are renting out part of the property, so long as you use part of the property as your principal residence. However, the purchase price of the home will be allocated proportionately among the units, so it might be that you would not get the full credit is the proportional value of your principal residence is less than $80,000 for first-time home buyers, or $65,000 for long-time homeowners– since the credit is 10% of the value.
Q. Can I get the credit if I buy a home outside the United States?
No, the tax credit only applies to homes within the United States.
Q. Does it matter how expensive the home is?
Yes, you can only get the tax credit for homes costing $800,000 or less.
Q. What if I buy a house that costs $801,000? Do I get a partial tax credit?
No, the $800,000 limit is a hard and fast limit. If the home costs $800,001, then the purchase is ineligible.
Q. Can I get the credit if I am buying a vacation home?
No, you must use the home as your principal residence.
Q. Can I get the credit if I buy the home from a relative?
No, you cannot get the credit if you buy from a close relative or a corporate entity you control. This includes purchases from your spouse, parents, grandparents, your children, your grandchildren, and your spouse’s family members.
Q. Can I still get the credit if I am building a new construction house?
Yes, although you have to move in by June 30, 2010. If a builder is building the house for you, the date of “purchase” will be the date of closing with the builder, which again must be by June 30, 2009.
Q. Can I get the tax credit if I am simply refinancing my current home?
No, the tax credit applies only to purchases.

Deadline Issues

Q. When do I have to be in contract?
In order to claim either first-time home buyer tax credit, or the long-time homeowner tax credit, you have to be in contract by April 30, 2010. This is a hard deadline, with no extensions.
Q. When do I have to be in closed?
In order to claim either first-time home buyer tax credit, or the long-time homeowner tax credit, you have to be closed by June 30, 2010. This is a hard deadline, with no extensions.
Q. What if my closing is delayed because of problems with appraisals, attorney delays, etc.?
It doesn’t matter. The IRS has been very exacting with the deadlines. If you don’t close by midnight June 30, 2010, you will not be able to claim the tax credit.
Q. What if I was already in contract at the time the law was passed in November?
It doesn’t matter when you went into contract, so long as you are in contract by April 30, 2010. So long as you otherwise qualify, and close by June 30, 2010, you will get the tax credit. Obviously, a number of people who got into contract without realizing they were going to be eligible for the tax credit are going to get a windfall.
Q. What if I was not eligible for a tax credit on the law prior to November 2009, and closed before the new law? Can I get a tax credit?
No, the law only applies to closings after November 6, 2009, and before June 30, 2010. If you closed on November 6, 2009 or earlier, and did not qualify for the tax credit at the time of your closing, you cannot get the new tax credit.

Buying with Someone Else

Q. If I am buying with someone else, and we both qualify, do we get two tax credits?
No, the tax credit is allocated according to the purchase, not the number of purchasers. So if two people who both qualify purchase a house together, they would split the applicable tax credit.
Q. What if I qualify for the credit, but my spouse does not?
In order to claim either the first-time home buyer tax credit, or the step-up home buyer tax credit, both spouses must be eligible. So if you are eligible, but your spouse is not eligible for whatever reason, neither of you can claim the tax credit.
Q. What if my income is within the limitations, but my spouse’s income is above the limitations?
In that case, unfortunately, neither of you qualify for the tax credit. Both of you must qualify.
Q. What if I previously owned a home in the past three years, but my spouse never owned a home?
In that case, unfortunately, neither of you qualify for either tax credit. You are ineligible for the first-time home buyer tax credit because you owned a home in the past three years, and she is ineligible for the long-time homeowner tax credit because she never owned a home before.
Q. What if my wife and I just got married after living in separate homes, and both qualify for the long-time homeowner tax credit for our prior homes.
Unfortunately, you don’t qualify. In order for a married couple to qualify for the “step-up” home buyer tax credit, both spouses must qualify by owning the SAME principal residence. You each owned separate principal residences, so even though you both might qualify separately, you don’t qualify together.
Q. What if my fiancé does not qualify, I do qualify, buy a home together in April 2010, and get married in May 2010?
You would be eligible for the tax credit, and she would not be. The government measures eligibility at the time of your purchase, so at that time you were not married. Accordingly, as unmarried purchasers buying together, either party can qualify and get the tax credit. The fact that you got married later would not eliminate your eligibility. If you had been married before you closed, though, neither of you would have been eligible.
Q. What if I qualify for the credit, but my girlfriend does not qualify, and we’re buying property together?
In that case, you would qualify for the full tax credit to which you’re entitled, and your girlfriend would not. You get the full credit, she gets nothing.
Q. What if I qualify for the first-time home buyer tax credit, and my girlfriend qualifies for the “step-up” buyer tax credit?
In that case, you would both be eligible for your appropriate tax credit, and would have to split it up in any reasonable manner between the two of you, so long as she did not get more than she was entitled to under the lower credit amount for the long-time homeowner tax credit.
Q. Can I buy a home with my son, for him to use as his principal residence, where he qualifies and I do not?
Yes, so long as your son qualifies for a tax credit, he would be able to claim the whole credit. Even though you are a buyer of the property with him, and you do not qualify, your lack of qualification does not affect his ability to qualify on his own. He would get the full credit.
Q. What if I buy 50% of the home to live in, and a friend buys the other 50% and will not live there?
You would be entitled to the full tax credit, even for just your 50% ownership interest. But keep a few things in mind. The tax credit is 10% of the property value up to $8,000 for first-timers or $6,500 for long-time homeowners, but is allocated according to your ownership interest. If you’re purchasing a home for, say, $100,000, only $50,000 of that value would be apportioned to your tax credit based on your ownership interest. Your friend would not be entitled to any of the tax credit, regardless of whether he or she qualified, since he or she would not be living there.

Military Issues

Q. Are there exceptions to some of these rules for military personnel.
Yes, both with the deadlines, and the payback rules. You must be a “Qualified service member,” meaning a member of the uniformed services of the U.S military, a member of the Foreign Service of the U.S., or an employee of the intelligence community. And you must be on “Official extended duty,” meaning any period of extended duty while serving at least 50 miles away from home for a period in excess of 90 days. In those cases, you will be allowed two exceptions: first, you have a one year extension to get into contract and close, and second, you can get a waiver for the requirement that you live in the home for three years after closing.
Q. What are the deadlines for qualified service members on official extended duty?
The deadlines of April 30, 2010 for contract and June 30, 2010 for closing have been extended for one full year for qualified service members on a period of official extended duty.

Tax Filing Issues

Q. Does the tax credit affect my ability to deduct mortgage interest and property taxes on my home?
No, the tax credit does not affect your normal mortgage interest and property tax deductions. Your deductions would apply as normal, reducing your taxable income, and your resulting tax would be offset by your credit.
Q. What if my 2009 income was within the limits, but my 2010 income is likely to be above the limits?
Assuming you otherwise qualify on the other conditions, you would be eligible for the tax credit and could apply it to your 2009 taxes on your 2010 purchase, even if you would not qualify under the income guidelines for your 2010 return.
Q. Can I apply the tax credit for my 2010 purchase to my 2009 tax return?
Yes, if your 2010 purchase qualifies for the tax credit, you can claim the credit on your 2009 return, either on your return by April 15, 2010, on your return filed with an extension, or on amended return filed after that date.
Q. Can I apply the tax credit for my 2009 purchase to my 2008 tax return?
Yes, if your 2009 purchase qualifies for the tax credit, you can claim the credit on your 2008 return by filing an amended tax return.
Q. How do I claim the tax credit on my federal return?
You need to use IRS Form 540t to determine the tax credit amount, and then account for the creit on line 67 on your 1040 income tax return. You do not need to get preapproval from the IRS, but you’ll need proof of your purchase (your HUD-1 statement should be attached to your return). You should probably talk to your accountant about this.
Q. Do I get the credit to my state taxes as well as my federal taxes?
No, the tax credit we are talking about applies only to your federal return, not your state return.
Q. What if I don’t owe any federal taxes?
You are entitled to the tax credit whether or not you owe federal taxes at the end of the year. If, for example, you are entitled to the full $8,000 tax credit for first-time home buyers, and you owe only $1,000 in federal taxes for 2009, then you’ll get a $7,000 check from the IRS. If you are supposed to get a $2,000 tax rebate, your rebate would now be $10,000.
Q. I am buying right now. Can I claim the tax credit now to help me with my down payment?
No, you cannot claim the credit until you file your tax return, and you must have completed your purchase by that time.
For a limited time, you may qualify to receive up to an $8,000 tax credit when you purchase an eligible home and meet specific criteria.
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About HomebuyerTaxCredit.com
The Home Buyer Tax Credit provides a tax credit of 10% of the purchase price a home up to $8,000 for first-time home buyers and $6,500 for “step-up” home buyers who are long-time homeowners. Both the first-time home buyer tax credit and the long-time homeowner tax credit are available for eligible buyers who are in contract by April 30, 2010 and closed by June 30, 2010. Please note that we have created this site to provide information only, and not to provide tax advice, and that you should not rely on the information on the site. Please discuss your tax matters with your accountant or financial advisor.

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