Thanks to the Worker, Homeownership and Business Assistance Act of 2009, millions more homebuyers will be eligible for money back from Uncle Sam when they file their tax returns via the homebuyer tax credit.
The new law expanded the time frame to purchase a home and get a tax break, for first-time buyers and current homeowners. And while many taxpayers welcome the new move-up or longtime resident option (it goes by either name), many potential buyers also have questions about the homebuyer tax credit.
Here are five common queries we've received at Bankrate.
No. 1: Timing your home purchase I sold my home this year, before the new law took effect. I had lived in it for more than five years and am looking to buy another residence. Will I qualify for the $6,500 homebuyer tax credit?
Sorry, but timing is everything with this credit and yours is just a bit off when it comes to claiming it.
While you meet the requirement that you live in your existing home for any five consecutive years any time within eight years before you buy another principal residence, in the Internal Revenue Service's eyes you bought too early.
For existing homeowners, the $6,500 credit is limited to homes purchased after the new law took effect, Nov. 6.
No. 2: Co-owner considerations I will be purchasing a home with someone to whom I am not married. We are applying jointly for the mortgage and will both be living in the home as our primary residence. I qualify for the first-time homebuyer tax credit of $8,000 and my co-purchaser qualifies for the $6,500 credit. Are we each allowed to claim the individual credit for which we qualify?
Sorry, no tax credit double dipping. You can't get a combined $14,500 credit for your home purchase. When two or more unmarried individuals jointly purchase their principal residence, the total credit allowed all eligible buyers cannot exceed $8,000.
The credit, though, can be split up among all qualifying buyers. In fact, the IRS says when two or more unmarried individuals jointly purchase their principal residence, the qualifying credit amount should be allocated among the purchasers using "a reasonable method."
This allocation could be splitting the credit amount based on (1) each taxpayer's contribution toward the purchase price or (2) the taxpayer's ownership interest in the residence.
You and your co-purchasers should look at the finances involved in the purchase and then run your tax return numbers to see who would benefit more from taking the lion's share of the homebuyer tax credit. For example, you could allocate $6,500 to your longtime resident co-purchaser and you could claim the remaining $1,500 as a first-time homebuyer. Or it might be more worthwhile for you to claim the $8,000 credit and your joint owner to forgo a claim. Of course in that case, you, as the taxpayer getting the full credit, might want to offer to use those tax savings to buy furniture for your new place.