taxes

First-time homebuyer tax credit rules

George Saenzq_v2.gifDear Tax Talk,
I am curious about the first-time homebuyer tax credit ($7,500). I would like to find out if I qualify. My wife and I purchased our home from relatives after the passing of another relative. Because we bought from relatives, does this disqualify us from claiming the credit?
-- Richard

a_v2.gifDear Richard,
Time is running out on one of the best opportunities for first-time homebuyers. Provided you can qualify for a mortgage, the IRS will give first-time homebuyers a refundable credit of up to $7,500 on their 2008 income tax return.

To qualify, a taxpayer and his or her spouse cannot have owned a main home within three years of the date of purchase of the new main home. The home has to be located in the U.S.

The credit is the lesser of $7,500, or 10 percent of the purchase price. The home has to be purchased on or after April 9, 2008 and on or before June 30, 2009. You can claim the credit on your 2008 income tax return for a home purchased by the deadline in 2009.

Currently, the credit must be repaid starting in the following year at the rate 1/15 per year. The Obama stimulus package may change this. The payback is accelerated if you sell the home at a gain.

To avoid abuse, purchases from a relative are excluded. For this purpose, a relative is your spouse, one of your ancestors or one of your lineal descendents. Your ancestors would include your parents, aunts, uncles and so forth. Specifically excluded are siblings and cousins. Depending on your relationship with the relative, you may still get the credit.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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