Q. I just read your blog about the tax rebate for homeowners (http://www.thebremnergroup.com/home-buyer-tax-credit-demystified/) and thought is was one of the best, most straight-forward explanations I have seen (and believe me, I’ve been looking at alot of them over the last month!) Thanks! I am currently going through a divorce. My husband is keeping the house we have lived in for the last 15 years – I am co-signed on the current home. He is refinancing to give me my equity in the house, which I am using to purchase a new home. We have always filed a joint return, as we have already done this year. My income is within that required for qualifying for the tax credit. Will I qualify for the tax credit? If so, do you know what documentation I will need to provide as proof of co-ownership of our current residence for the last five years?
A. First of all, let me say I’m not an accountant or attorney, so my first advice to you is to consult your representatives.
In my understanding of the tax credit, if you, as a single person, qualify for the tax credit, and are buying as a single or unmarried person, AND will be filing a separate tax return, you would qualify.
Here is the eligibility test:
- You are at least 18 years of age.
- You are a US citizen.
- You are buying a property in the US.
- You are buying a single family, condo, or multi family of less than four units which you will occupy.
- You are planning to live in the property for at least 3 years.
- You are not buying from a relative. The Home Buyer Tax Credit is not available to purchasers who are buying from a direct relative, or from a corporate entity that they control.
- Your home will cost $800,000 or less.
- Your home is not new construction. The Home Buyer Tax Credit provides special deadlines for purchasers who are building a new construction home.
- You must be in contract by 4/30/10.
- You must close escrow by 6/30/2010.
- You qualify for step up ($6500) tax credit if you owned for five of the last 8 years. To be eligible for “Step-Up” tax credit, you need to have owned AND lived in the SAME principal residence for at least five consecutive years out of the last eight. If you owned and lived in multiple residences during that time, you will not be eligible.
- Will you still be LEGALLY married at the time of your purchase? Certain rules apply to people who are married at the time of their purchase (even if they are legally separated). Note that the IRS measures your marital status for tax credit purposes at the time of your purchase, not at the end of the year, so if you will be getting divorced after your closing, then you would be considered “married” for the purposes of the Home Buyer Tax Credit.
- Are you buying with someone else? If you are buying with someone else, such as a domestic partner, significant other, boyfriend, girlfriend, family member, or friend, your partner in the purchase will have to qualify for a tax credit on his or her own.
- What best describes your personal yearly modified adjusted gross income, as loosely defined below? The income limitations are based on your yearly Modified Adjusted Gross Income (“MAGI”), which is approximately the total of your wages, salary, interest income, dividends, and capital gains. In order to qualify for the full credit, your income must be below $125,000, although you can get a partial tax credit if your income is within $20,000 of that limit. If you have questions about this, you should talk to your accountant.
- According to your responses to the Eligibility Test, you may qualify for the step-up home buyer tax credit of 10% of your purchase price up to $6,500, if you meet all the basic eligibility requirements, AND you qualify as a long-time homeowner, AND your income is below the stated limitations. Obviously, you should check with your accountant before you make any major decisions.
The necessary documentation, in your case, will include a HUD-1 (closing statement) signed by all parties, and may include a copy of your dated divorce decree. Please consult your attorney.
We hope you get the opportunity to take advantage of the Home Buyer Tax Credit, since it provides such a tremendous benefit. Moreover, with prices significantly down throughout the country and rates low, this is a great time to buy your first home.
If you would like more information about the tax credit, or if you would like to talk to a real estate, mortgage, or accounting professional, we will be happy to help you.