6,500 Tax Credit for Homeowners

Has anyone seen anything requiring the home owner to have sold or in the process being sold their previous principle residence to qualify for the tax credit. My client has owned their home for 5 years, wants to buy another as principal residence, but want to keep the previous as an investment property. Nothing on irs.gov. NAR has a guide showing that the previous home must be sold or is being sold. Thanks

Cameron,

I don't have any specific information yet, but from what I've heard so far from the higher ups here at work is that your client would be eligible for the credit.  No need to sell their current home, as long as their debt to income ratio is good with both house payments or they have enough equity to be able to include the rent as income (along with some other requirements).  I'll post any further info I can gather but I'm sure more details will be coming out shortly.

Found this on the NAR website. Check out the Current homeowner definition

NAR Issue Brief Homebuyer Tax Credit

National Association of REALTORS^® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001

NAR Issue Brief Homebuyer Tax Credit

National Association of REALTORS^® Government Affairs Division 500 New Jersey Avenue, NW, Washington DC, 20001

I believe their "definition" is inprecise. It presumes that the buyer is selling the current home they own. I do not believe that is a requirement. Of course my opinion (and theirs) doesn't matter.  Only the interpretation of the IRS matters, and they haven't published one yet.

As a side note I can imagine that NAR would want buyers to also be sellers. I don't think it was the intent of Congress that these move-up buyers also put their homes on the market if they don't have to. The idea is to reduce inventory not increase it. 

There is nothing in the bill that mentions the property being sold.  It only refers to it as a replacement home and that they must have lived in one home for 5 out of the last 8 years.  Some might purchase a new primary residence and keep the current home as a 2nd home.  Or perhaps convert it to rental property.

How about keep the one owned for 5 years as principal residence, and buy another one for rental purpose, will that qualify for tax credit?  How does IRS know that the new house just bought is for principle residence?   Thanks

Lily zhu:

How about keep the one owned for 5 years as principal residence, and buy another one for rental purpose, will that qualify for tax credit?  How does IRS know that the new house just bought is for principle residence?   Thanks

No you can't do that unless you lie to the IRS and are willing to take the penalty or go to jail. 

Lily zhu:

How about keep the one owned for 5 years as principal residence, and buy another one for rental purpose, will that qualify for tax credit?

No.

Lily zhu:

How does IRS know that the new house just bought is for principle residence?

Because the taxpayer is required to tell them. The tax system is based on "voluntary compliance," i.e. the taxpayer is required to voluntarily report their income and compute their tax liability. If the taxpayer chooses not to voluntarily report their income and calculate their tax liability correctly they are at risk of being found out. If it is found out that they evaded income tax or fraudulently received tax refunds for which they were not eligible, then, as Bryan wrote, they might end up in jail or be subject to fines and penalties.

To make sure that taxpayers are "voluntarily" complying, the IRS often audits suspicious tax returns. It is quite obvious how they might be able to cross-check those that file for this credit claiming a property as their primary residence when it is not.

Cameron,

MND published a link to the NAR Government Affairs Division where they specifically answer this question:

"Question: I owned my home for 10 years, but sold it two years ago year and have been renting since. If I purchase a home, will I be eligible for the $6500 tax credit if I meet all the other eligibility tests?"

"Answer: Yes. Because you lived in the home for more than 5 consecutive years of the previous 8, you will qualify for the $6500 credit. For example, Say John and his wife bought a home in 2000 and lived there until 2008 when he got a divorce. Whether John has been renting or bought in the interim, he WOULD INDEED be eligible for the credit because he owned a home and occupied it as his principal residence for 5 consecutive years out of the last 8 years. The keyword here is "consecutive." As long as he lived in that house for 5 years straight what he did since 3 years doesn't impact eligibility."

http://www.realtor.org/wps/wcm/connect/d336a1804033a163816af5205f470b6e/government_affairs_tax_credit_FAQs_110509.pdf?MOD=AJPERES&CACHEID=d336a1804033a163816af5205f470b6e

http://www.mortgagenewsdaily.com/11102009_home_buyer_tax_credit_answers.asp

Thanks to Adam and MND.

Thanks for replies!

Does the tax credit apply for F-1 visa holder who files tax return form?  how about aliens who live in USA less than 3 years?

Lily,

These questions are very technical in nature and can not address your specific situation. Please contact a tax professional for tax advice.

Generally speaking, the definition of a "first-time homebuyer" eligible for this credit is someone that has not owned a home used as their principal residence in the last three years. There is no requirement that a taxpayer must have lived in the US for over three years. As a matter of fact according to a question and answer on the IRS web-site owning a principal residence within the last three years outside of the US does not disqualify a taxpayer from the credit:

"Q. Would I be considered a first time homebuyer if I owned a principal residence outside of the United States within the previous three years?"

"A. Yes. A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States."

http://www.irs.gov/newsroom/article/0,,id=206291,00.html

A good question to ask a tax adviser is can students in the US on an F-1 Visa have a principal residence in the US since they are nonimmigrant aliens and temporary residents?

Thanks for reply!

I checked the irs web site, the F visa holder is considering as nonresident, thus not qualify for the tax credit.

Q. Who cannot take the credit?

A. If any of the following describe you, you cannot take the credit, even if you buy a new home:

• Your income exceeds the phase-out range. This means joint filers with MAGI of $170,000 and above and other taxpayers with MAGI of $95,000 and above.
  
  
• You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.
  
  
• You do not use the home as your principal residence.
  
  
• You sell your home before the end of the year.
  
  
• You are a nonresident alien.
  
  
• You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
  
  
• Your home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
  
  
• You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Thanks for posting that information Lily.

Angela,

First let me say that you need to ask your tax/legal adviser again to get a clear answer that applies specifically to your situation. But here are some observations.

Angela Meyer:

In 2006 my mother added my name to the title of the home (not sure if this is relevant???).

This is extremely relevant. It sounds like you became a owner of this property in 2006 when your mother deeded you an interest in the property. I am presuming that when you say she added your "name to the title of the home" that is how it was done.

Angela Meyer:

In 2007 we assumed the mortgage loan from my mother and became owners of the home vs. renters.

This is not when you became a homeowner; this was when you became responsible for a loan. You became an owner of the property when your name was "added to the title." (Again I am having to make some presumptions that could be wrong.)

Angela Meyer:

It's basically the question of; does a homeowner qualify because the homeowner LIVED in the same house for 5 out of 8 years....or, OWNED the home for 5 out of 8 years?

Here are some issues you need to consider:

It appears you purchased (became a homeowner in a property) in 2006 and have lived in it as your primary residence since then.

It appears you have owned and used the property as your primary residence consecutively for about three of the last eight years.

It appears your interest in the property you own came from a close relative.

From the IRS website:

"S8. A qualifying taxpayer bought a home in August 2008 that needed a lot of work before occupying. They finished the renovations and moved in the home in January 2009. Can they claim the $8,000, since they did not occupy the home until 2009?"

"A. No. Taxpayers who purchase an existing home and renovate the property before moving in are eligible for the first-time homebuyer credit based on the date of purchase, not the date of occupancy."

"Q. Does previously inheriting a home and living in the inherited home automatically disqualify an individual as a first-time homebuyer with respect to a different home that is purchased within the prescribed 2008 and 2009 time frames?"

"A. Yes, an ownership interest in a prior principal residence would preclude the taxpayer from being considered a first-time homebuyer. As long as the taxpayer owned and used the prior home as his principal residence, then he is not a first-time homebuyer. There is no exception for taxpayers who did not buy their prior residences. (05/06/09)"

"Q. Who cannot take the credit?"

"A. If any of the following describe you, you cannot take the credit, even if you buy a new home:"

• "You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild."
• "You owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008."

From the text of the bill:

‘(6) EXCEPTION FOR LONG-TIME RESIDENTS OF SAME PRINCIPAL RESIDENCE- In the case of 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, such individual shall be treated as a first-time homebuyer for purposes of this section with respect to the purchase of such subsequent residence.’.

I think this last one answers your question: "does a homeowner qualify because the homeowner LIVED in the same house for 5 out of 8 years....or, OWNED the home for 5 out of 8 years?" It clearly says: "owned and used."

Thank you Mr. Cooper for your insight! Although not the answer I was hoping for...it is indeed an answer and that is what I need.

As you suggested, I will check again with my CPA just to make sure. Thanks again!

I've read this thread and the various IRS pages and scenarios, and I still have a basic question. My wife and I purchased a house in June, 2009. Prior to that, we owned a house for about 10 years. The old house was our primary residence, and we sold that the same time we moved into our new primary residence. Just an ordinary sell-the-old-house-and-buy-and-move-into-a-new-house deal.

It appears to me that because we purchased our new house in June, 2009, i.e., prior to November, 2009, that we are not eligible for any of these credits. Is this correct?

Thanks,

Bill

William Pollack:

I've read this thread and the various IRS pages and scenarios, and I still have a basic question. My wife and I purchased a house in June, 2009. Prior to that, we owned a house for about 10 years. The old house was our primary residence, and we sold that the same time we moved into our new primary residence. Just an ordinary sell-the-old-house-and-buy-and-move-into-a-new-house deal.

 

It appears to me that because we purchased our new house in June, 2009, i.e., prior to November, 2009, that we are not eligible for any of these credits. Is this correct?

Thanks,

Bill

You are correct.  You do not qualify for the tax credit.