It looks as if we qualify for the move-up credit, but we signed a contract to buy our home before the president signed the new law. We're going to close at the end of November. Do we get the money?
As long as you close after Nov. 6, you can qualify for the credit. The new credit is often referred to as a move-up credit.
We plan to sell our home and retire to a smaller place. Is the $6,500 credit available only if you buy a more expensive home?
Don't worry. "Move-up" is a misnomer often used to distinguish this from the first-time-buyer credit. It's OK to downsize.
There are no rules about the cost of the house you sell or the home you buy, except that the new house can't cost more than $800,000.
How do I claim a credit?
The procedure is the same for both the first-time-buyer and longtime-resident credits. Once you close on a qualifying house, you claim a credit on your federal tax return. If you close in 2009, you can choose whether to claim the credit on the 2009 return you file next spring or on an amended 2008 return. Choosing the amended return would bring you a refund of the full credit amount. If you claim the credit on your 2009 return, it will reduce your tax bill for the year by the amount of your credit.
This is what's called a refundable credit, so if the credit reduces your tax bill below zero, you'll get the difference as a tax refund. If you close on a home in 2010, you can claim the credit on either your 2009 or 2010 return. Sooner rather than later is the choice to make.
You'll need to file a Form 5405 to claim the credit and include a copy of your settlement statement (such as the HUD 1 form) to prove that you bought the house. The settlement statement was not required for deals that closed before Nov. 7.
More from MSN and Kiplinger
Not on the upper end. But as part of an anti-fraud effort, neither homebuyer credit is available to taxpayers who were under age 18 at the time of the purchase. The discovery that taxpayers as young as 4 years old were claiming the first-time-buyer credit cast suspicion that some hanky-panky was going on. Married couples can qualify for the credit as long as one spouse is at least 18 at the time the deal is closed.
The new law also bans anyone who is claimed as a dependent on someone else's return from claiming a homebuyer credit.
Can I claim the credit for the purchase of a vacation home? How would the Internal Revenue Service know whether I was living there full time?
The credits are available only for the purchase of a principal residence. As for how the IRS might know a new house is a vacation property, the fact that your tax return was filed from an address that's different from the address of the new property (which would be shown on the settlement sheet) might raise some eyebrows. If the IRS concludes that a claim is fraudulent, it can impose a 75% penalty, which would cost $6,000 on an $8,000 credit claimed for a vacation home.
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We bought a home Oct. 15, 2003, and sold it in August 2008. So we owned the home for slightly less than five years. We are renting an apartment now and are looking to buy a home. Do we qualify for the first-time-homebuyer tax credit as amended, assuming that we pass the necessary income tests?
Sorry, but based on the facts you present, you're out of luck. To qualify for the first-time-buyer credit, you cannot have owned a home within the previous three years. You sold your previous home just 15 months ago. And it appears that your ownership of that home was a few months shy of five years, the minimum period of continuous ownership required for you to qualify for the longtime-resident credit.
Can I qualify for both the first-time-buyer and longtime-resident credits?
No. You can claim only one or the other.
My husband's parents are offering to sell us their vacation home as our first home. Would we qualify for the first-time-buyer credit?
Not anymore. The original first-time-buyer credit law disallowed the credit if the home sale was between related parties, but there was a loophole for the situation you describe. Since you are not related to your husband's parents, except by marriage, you could have qualified for the credit, assuming you bought the home jointly. The new law, however, puts the kibosh on that, effective for purchases after Nov. 6, 2009.
This article was reported by Kevin McCormally for Kiplinger's Personal Finance Magazine.
Published Nov. 12, 2009
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