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Home Buyer Tax Credit Scenarios

Specialized Scenarios: How does the Tax Credit Apply?

At HomeBuyerTaxCredit.com, we are happy to field questions from readers who have particularly complex situations and wonder whether they are eligible for the Home Buyer Tax Credit. Before you send us a question, make sure you’ve read our Overview and our Frequently Asked Questions section, and also that you’ve taken our Eligibility Test. But if those resources do not answer your question, feel free to post a comment on our Blog or send us an email and we’ll try to respond.

Based on questions that have been submitted to us in the past, we’ve identified particularly complicated scenarios that illustrate how the tax credit applies in common situations for home buyers. We’ve organized this section according to the general subject matter of the inquiry.

Always, though, we caution you that we are not accountants, and you should discuss any matter relating to your taxes with an accountant before you make any important decisions.

General Subject Matter Scenario Answer
Income Limitations I never owned a home before, and signed a contract to buy a $300,000 home in July. My income was above the $75,000 first-time home buyer limitations that were in place last summer, but I’m within the new income limitations under the new Home Buyer Tax Credit. I still have not yet closed as of January 2010. Assuming I am otherwise eligible, can I get the credit? Yes, you qualify, so long as you close by June 30, 2010. Under the home buyer tax credit law, it doesn't matter if you are already in contract when the law is passed. The only requirement time-wise is that you must be in contract by April 30, 2010 and close by June 30, 2010. It’s a bit of a windfall for you, since you didn’t expect it, but enjoy it!
Income Limitations. I have never owned a home before, and I closed on my new $300,000 home in July. My income was above the $75,000 first-time home buyer limitations that were in place last summer, but I’m within the new income limitations under the new Home Buyer Tax Credit. Assuming I am otherwise eligible, can I get the credit? Unfortunately, no. The new income limitations do not apply retroactively to closings prior to November 7, 2009. If you did not qualify for the tax credit at the time of your closing, you cannot get it. If you are curious as to the guidelines in place at the time of your closing, check out our “Changes” section that reviews the history of the tax credit legislation.
Investments I currently own a condo that I have owned and lived in for the last six years. I would like to keep the condo as an investment and buy a new home (I don’t need the equity from the condo for my down payment). If I otherwise qualify, can I keep my condo and buy a new home while getting the tax credit? Yes. If you are otherwise qualified, nothing in the Home Buyer Tax Credit law requires you to sell your current home to get the long-time homeowner tax credit on your purchase. You just need to live in your new home for at least three years, or you’ll have to pay the credit back.
Investments I owned my own home and lived in it for the past ten years. I also own a vacation home in Florida. I now want to sell my home, but a rental apartment for a tenant, and go live in my vacation home. If I otherwise qualify, can I do that and get a tax credit? No. The Home Buyer Tax Credit is only available for principal residences, not investment properties. You’d have to live in that new home for at least three years, or you’d have to pay the tax credit back. But you could buy the apartment and rent out your current home, since nothing in the law requires that you sell your current home in order to claim the credit.
Investments (Multi-Families) I am thinking of buying a two-family home so I can live in part of it and rent the other part out to tenants. If I otherwise qualify, can I get a tax credit on my purchase? Yes. Regardless of whether you are a first-time home buyer or a long-time homeowner, you can get a tax credit if you buy a multi-family home, so long as you make part of the home your principal residence.
Investments (Multi-Families) I am thinking of buying a four-family home so I can live in part of it and rent the other part out to tenants. The multi-family home costs $200,000. If I am otherwise eligible, can I get the tax credit on my purchase? Yes, but you might not get the full tax credit, because the credit is up to 10% of the purchase price, but the purchase price is allocated according to the portion of the home you live in. So in your case your maximum tax credit would be $5,000 (10% of $50,000, since you are living in ¼ of the property).
Married Couples My husband and I just got married. He has owned and lived in his home for the past 10 years, but I have never owned before. We’d like to sell his home and buy something bigger for the both of us. If we otherwise qualify on income and other guidelines, can we get the tax credit on our purchase? No. Unfortunately, the Home Buyer Tax Credit includes what we think is an inadvertent “marriage penalty” for married couples. Both spouses have to be eligible for the same tax credit in order for the couple to qualify. In this case, you might qualify for the first-time home buyer tax credit, and he might qualify for the long-time homeowner tax credit, but you essentially cancel each other out. You both need to qualify for the same credit. It’s an unfortunate result.
Married Couples My husband and I just got married. He has owned and lived in his home for the past 10 years, and I have owned and lived in my home for the past seven years. We’d like to sell our homes and buy something together. If we otherwise qualify on income and other guidelines, can we get the tax credit on our purchase? No. Unfortunately, the Home Buyer Tax Credit includes what we think is an inadvertent “marriage penalty” for married couples. In this case, although you both would individually qualify for the long-time homeowner tax credit on your purchase, you need to qualify as a couple. That means that you need to have lived in the SAME home for five consecutive years out of the last eight, not different homes. It’s an unfortunate result.
Married Couples My husband and I are separated, and we will not be divorced until well after June 30, 2010. We file our taxes separately. We lived in a home that he has owned for ten years while we were married, but I was not on the deed and had no ownership interest. I would like to buy a home for myself, and have never owned a home before. If I otherwise qualify, can I get the tax credit? No. Unfortunately, the Home Buyer Tax Credit includes what we think is an inadvertent “marriage penalty” for married couples. Even though you are separated, and file separately, the IRS considers you “married” for purposes of the tax credit. Accordingly, although you qualify individually as a first-time home buyer, his ownership of a home within the past three years disqualifies you both.
Married Couples My fiancé and I are due to be married in February 2010, and are hoping to buy a home soon after that. He currently lives in a home that he’s owned for two years, but I’ve never owned a home before. We’d like to sell his home and buy something together. If we otherwise qualify, can we get the tax credit? Yes, so long as you don’t get married first. Oddly enough, you can get the tax credit even where one partner is ineligible, but not if you are married at the time of your purchase. You both need to qualify if you are married, and in this case he would not qualify because he has owned a home for the past two years. The IRS considers your marital status at the time of your purchase, not at the time of your tax filing, so if you put off your marriage until after your closing you will be entitled to the full first-time home buyer tax credit, while your fiancé will not be entitled to anything (other than your love and affection).
Married Couples My husband and I have never owned a home before. We file our taxes separately. I make $50,000, and he makes $150,000. Together, we make less than the $225,000 income limitation for married couples filing jointly, but individually he makes too much for the married couples filing separately income limitation (maximum $145,000). Can I still get the tax credit if he is ineligible, if I otherwise qualify? Yes. For a married couple to earn the home buyer tax credit, the couple has to qualify at the joint filing income level (maximum $245,000), or each has to qualify individually for the individual income level (maximum $145,000). Although both spouses need to qualify for the couple to qualify, if you file separately you can qualify for half of the tax credit you would be entitled to.
New Construction I have been building a home for myself for the past two years. I already own the land, and am doing the work myself and with subcontractors. I should be finished by the Spring, and expect to have a certificate of occupancy by May. If I am otherwise qualified, can I get the tax credit on my new construction? Yes, so long as you are legally allowed to move in by June 30, 2010. For homes that you are building yourself, the deadline for claiming the credit is the day you move into the home. If you are able to move in prior to June 30, 2010, you would be eligible for the tax credit.
New Construction I have been in contract with a builder for a new home for over two years, and he is finally finishing construction. We expect to close by June 30, 2010. If I am otherwise eligible, can I get the tax credit on my purchase of new construction? Yes. The rules are the same for new construction built by a builder and resale homes: you have to be in contract by April 30, 2010, and closed by June 30, 2010. It does not matter how long you have been in contract. So long as you close by June 30th, you will be eligible for the tax credit.
Ownership History I owned my own home for ten years, and lived in it until last year, when I started renting it out. Can I sell my home and get the credit for a new home, assuming I am otherwise eligible? Yes. The Home Buyer Tax Credit law does not require that you live in your current home, only that you made it your primary residence for five consecutive years out of the last eight. According to your statement, you lived in the home for more than five consecutive years out of the last eight, so you qualify for the “Step-Up” home buyer tax credit for long-time homeowners.
Ownership History I bought my home about three years ago, and have lived in it the whole time. If I am otherwise eligible under income and other guidelines, can I get a tax credit if I sell my home and buy a new one? No. You don’t qualify for the first-time home buyer tax credit, since you owned a home that you lived in during the past three years (indeed, you’re living in it now). And you don’t qualify for the long-time homeowner tax credit, since you did not live in that home for at least five consecutive years, only three.
Ownership History I owned a home that I lived in for about 14 years, sold it four years ago, and simultaneously bought a new home that I’ve lived in since then. So I’ve lived continuously in a home I owned for 14 years, but two different homes. If I am otherwise eligible, can I sell my home and get a tax credit on my purchase? No. You do not qualify for the “Step-Up” home buyer tax credit for long-time homeowners, because you have not owned the same primary residence for five consecutive years out of the last eight. It seems odd that the law requires you to keep the same residence for five out of the last eight years, but that’s the requirement. Essentially, the law considers only your most recent residence, not your full ownership history.
Tax Filing I am closing on my new home purchase in April 2010. I am otherwise qualified for the first-time home buyer tax credit, but I might make too much money in 2010 for the income limitations (i.e., more than $145,000, since I am unmarried). I made only $90,000 in 2009. Can I buy the home in 2010 and get the credit for my 2009 taxes, even though I will not qualify based on my 2010 income? Yes. If you are otherwise eligible for the home buyer tax credit, you can get the credit on your 2009 taxes for your 2010 purchase either by closing before the April 15 filing deadline, getting an extension to file your return, or filing an amended return.
Unmarried Partners I would like to help my son buy his first home. He is over 18, and has never owned a home before. But he doesn’t have enough money to buy a home. I would be on the deed, and the mortgage. Assuming that I do not qualify for any tax credit, and he otherwise qualifies, will he still be able to get the home buyer tax credit even with my involvement in the purchase? Yes. He can get the maximum credit. When two (or more) unmarried people are buying a home together, one partner can get the full tax credit to which he or she would be entitled, even if the other partner is ineligible for whatever reason. In this case, you are not eligible, but your son is eligible as a first-time home buyer. He would therefore be entitled to the full $8,000 tax credit.
Unmarried Partners My boyfriend and I want to buy a home together. I own a home currently that I’ve owned and lived in for two years. He has never owned anything before. Assuming we both otherwise qualify under the other guidelines, can we get the tax credit for our purchase? Yes and no. He would qualify for the first-time home buyer tax credit, and would be entitled to claim the full amount he is entitled to. You would not qualify, since you owned a home within the past two years. If you were married, your ineligibility would render you both unable to claim the credit. Since you are unmarried, he can claim the credit, although he is not allowed to share any portion of that credit with you. (That doesn’t mean he can’t take you out to celebrate, though, only that the credit will come off his tax obligation).
Unmarried Partners My brother is going to help me buy my first home. He is going to buy 50% of a condo, and I’m going to buy the other 50% and live in the condo and pay him a little rent to cover his costs. If I otherwise qualify, can I get the tax credit for my purchase? Yes, if you are otherwise eligible, you would be entitled to the full first-time home buyer tax credit, depending on your income and the purchase price. Note that the tax credit is 10% of the purchase price up to $8,000, and you could only allocate 50% of the purchase price toward the credit – i.e., if the condo costs $100,000, your “purchase price” would be 50% of that, or $50,000, and the maximum tax credit you could get would be 10% of that, or $5,000. He would not be entitled to anything, since he will not be living in the condo.
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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Video Archive
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Married Couples and the Home Buyer Tax Credit
Married Couples and the Home Buyer Tax Credit
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How to Use the Home Buyer Tax Credit
How to Use the Home Buyer Tax Credit to Invest, Buy for Someone Else, or Downsize
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Fox Business Interview with Greg Rand from Better
Fox Business Interview with Greg Rand from Better Homes and Gardens Rand Realty
Added: 01/10/2010
IRS Recovery Video Series Announcing New Home Buyer
IRS Recovery Video Series Announcing New Home Buyer Tax Credit
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IRS Recovery Video Series on How to Claim the Home Buyer Tax Credit
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IRS Recovery Video Series for Special Rules for Military Personnel and other Government Employees
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National Home Builders of America Explanation of the Home Buyer Tax Credit
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Fox 2 News in St. Louis Interview with
Fox-2 News in St. Louis Interview with Brian McCrae on Home Buyer Tax Credit
Added: 01/10/2010
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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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