First-time homebuyer tax credit

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Dear Tax Talk,
My husband and I have been separated for years. Late in 2007 I started planning to buy a house, and ended up purchasing on May 2, 2008. I qualify for the $7,500 tax credit for first-time homebuyers — but with some confusion.

My husband became disabled and returned to live with me just prior to the home purchase. The home is mine alone — my mortgage to pay, my taxes to pay. His name is not on anything. We will be filing taxes as married filing separately. According to everything I read, that makes me eligible for only half the $7,500 credit. Is this correct?
— Kit

Dear Kit,
You should have started planning the divorce at the same time. In 2008, individuals can claim a tax credit of up to $7,500 (or if less, 10 percent of the purchase price) for a first-time home purchase. If you’re married and filing separately, the credit is only $3,750. If you want the full credit, either you have to think about filing jointly, see if you can qualify for head of household, or if possible have the marriage annulled (this way you will have never been considered married).

To claim the credit in 2008, you will have to bought a main home in the U.S. between April 9, 2008, and June 30, 2009, and not have owned another main home for three years. Even if you buy the home in 2009, you can still get the credit in 2008.

Publication 530 briefly discusses the credit and says to refer to the tax Form 5404 for more information. Actually it’s Form 5405, which has only been released in draft form. The credit is claimed on Form 1040 Page 2, line 69, which means that the credit is like an additional tax payment that can be refunded to you.

The credit is actually an interest-free loan that must be repaid over the next 15 years, or you’ll pay the full unpaid amount upon its sale at a gain.

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