Note: The content of this article applies to taxes prepared for 2010. It is included here for reference only. The Homebuyer Tax Credit was extended and expanded on November 6, 2009, but qualifying for it can still be tricky. If you're hoping to claim the credit in 2010, these tips could help you.
If you want the credit, know the rules
The First-Time Homebuyer Credit was expanded in late 2009 to include repeat home buyers as well. Buyers must have had a binding contract in place on or before April 30, 2010 and must have closed on the home on or before September 30, 2010.
Here are some tips that could help you qualify:
1. First-time homebuyer
You don’t actually have to be a first-time homebuyer to qualify.
True, the tax credit is designed mainly to help people who’ve never been homeowners.
But if you’ve owned a home before, you can still qualify, as long as the home wasn’t your main residence in the previous three years. This applies even if you’ve been renting out your former main home in the past three years. Your principal, or main, residence is the place you live most of the time.
And here’s an interesting twist. You can qualify for the credit even if you have owned a main home outside of the United States in the past three years.
Married couples don’t qualify if EITHER spouse has owned a home in the past three years.
To be considered a “new” homebuyer, you can’t have owned your principal residence within the past three years. You can’t get around this, even if your spouse has not owned a house in the past three years and buys the principal residence, leaving you off the deed. What counts is that you’re married and one of you doesn't qualify.
However, two people who aren’t married can buy a home together—and one can get the credit, even if the other person doesn’t meet the three-year rule.
What if those two people later get married? Does the credit have to be repaid? No. The IRS says the eligibility for the credit in this case is determined on the date of the home purchase.
Repeat or long-time homebuyer
Both spouses must qualify.
If you're married, and you and your spouse hope to qualify for the repeat homebuyer credit, both of you must have owned and lived in the same primary home for the past five out of eight years. Unfortunately you can't qualify if only one of you did.
You can still have a rental or second home.
If you do qualify for the repeat homebuyer credit, you don't have to give up the primary home you have now. You can keep that as a rental, as long as you use the home you buy with the credit as your main home.
Both first-time and long-time homebuyers
The home you purchase doesn’t have to be a house.
It can be a condo or a townhome. It could also be a motor home or a houseboat, just as long as it’s your principal residence. But the credit can’t be used to buy a vacation or a second home.
If you want to rent out part of your main home, you still qualify to receive the credit.
As long as you still live there most of the time, you can rent out parts of the home and still qualify for the credit.
Mom and Dad or your rich uncle can help pay the mortgage.
What if your parents or family members help make some of your monthly mortgage payments on the home you buy? You can still qualify for the credit, as long as you can't be claimed as a dependent on their tax return. You must own the home, it must be your primary residence, and you must meet the requirements on income and prior home ownership.
To claim the credit, you must file a paper return
Most qualifying taxpayers will claim the homebuyer credit on their tax returns on Form 5405 and will be required to submit documentation supporting their eligibility to receive the credit.
Because of these new documentation requirements, taxpayers claiming this credit must file paper returns and cannot file electronically. They can still use software like TurboTax to prepare their returns, but the returns must then be printed out and mailed to the IRS with supporting documentation. In fact, on its first-time homebuyer credit Q&A page, the IRS "urges you to use tax-preparation software to fill out your return because the software helps to avoid needless mistakes as the return is prepared."
For more information, see the article Taking the First-Time Homebuyer Credit.
Want to know more? Watch the video.
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