A Second Shot at the First-Time Home Buyer Tax Credit?
Original Post Date: April 8, 2011
By: June Fletcher
Q. I bought a condo in 2008 and took the first-time home buyer tax credit. Then, in 2010, I sold the condo, got married, and my wife and I bought another home. She had never owned a home before. We closed on the house in July 2010. Can we take another first-time home buyer tax credit?
A. I don’t think so, unless you qualify for an exception I’ll explain later.
As you may know, the first-time home buyer tax credit of up to $7,500 that you took on your 2008 return was really more of an interest-free loan. It applied to only to residences purchased between April 8, 2008 and Jan. 1, 2009. Since you sold the home with the 36-month period of when you bought it, you will have to repay the entire credit with your 2010 tax return.
Later the rules changed more favorably for buyers. As it stands now, if you entered into a binding contract to buy a residence after Dec. 31, 2009, and on or before April 30, 2010, and closed on or before Sept. 30, 2010, you can claim a maximum credit up to $8,000, or $4,000 for married filing separately, as long as your modified adjusted gross income doesn’t exceed $225,000 for joint filers, or $125,000 for single filers. The credit is reduced for income levels above that, and completely eliminated if your modified adjusted gross joint income exceeds $245,000 or $145,000 for single filers. The good news for those who qualify: If you use the residence as your main home for at least 36 months after purchase, you don’t have to pay back the credit.
The IRS is pretty loose about what you can call home—it can be a condo, coop, mobile home or even a house boat. But the purchase price of the home cannot exceed $800,000, and at least one of the purchasers must be at least 18 years old on the date of purchase and can’t be claimed as a dependent on anyone else’s return.
So far, so good? Ah, but there’s a wrinkle in your case. According to IRS Form 5405, you and your spouse cannot be considered first-time buyers if either of you owned another main home during the three-year period ending on the date of your purchase.
Long-time home buyers who file jointly can also take a credit of up to $6,500, or $3,250 if married filing separately. But you don’t qualify for this, because you must have used the same home as your residence for five consecutive years during the eight years before the home was purchased.
However, there is an exception that allows members of the uniformed services, Foreign Service or the intelligence community to take the credit for a home bought in 2010. The IRS says that if such individuals qualified for the credit, but then married someone who does not qualify for the credit—and are claiming the credit for the year that they married—they can claim up to an $8,000 on a joint return or $4,000 if married filing separately.