IRS clears air on homebuyer credit

Personal finance

Eileen Ambrose -- Personal Finance

December 08, 2009|By Eileen Ambrose eileen.ambrose@baltsun.com

The first-time homebuyer credit was expanded more than a month ago so that even some longtime homeowners could claim up to $6,500 if they bought a new principal residence.

But as the weeks went by, a huge nagging question remained: Must both spouses qualify for the $6,500 credit, or can a couple claim it if only one of them meets the necessary conditions?

On Monday, the Internal Revenue Service finally weighed in. The agency said that both spouses must meet the criteria to claim the credit.

Tim Justice, a software company manager in northern Kentucky, says he's been monitoring the IRS' Web site daily, hoping to find an answer on whether he can claim the credit. Justice got married in October and he and his wife bought a house about a month later. He qualifies for the $6,500 credit; his bride doesn't.

"It's unfortunate," Justice said Monday after hearing he won't get the federal credit. One consolation: He will qualify for a homebuyer credit offered by his state.

The $8,000 first-time homebuyer credit was signed into law in February. To be considered a first-time buyer, you can't have held an ownership interest in a house in the previous three years. Both spouses must meet the definition of a first-time buyer, or they can't claim the credit.

When extending the credit's deadline early last month, Congress added a credit worth up to $6,500 to longtime homeowners buying a new primary residence. To qualify for this, you must have owned and lived in the same principal residence for at least five years in a row any time during the eight years before buying the new house.

But many readers were unsure if both spouses had to meet the five-year rule.

A reader named Josh, for instance, wrote that he got married in August, and he and his wife were closing on a house in February. "I qualify for $6,500 as a repeat buyer, but my wife has never owned a home. Do we cancel each other out? So we can't get the $8,000 that she would qualify for and I can't get the $6,500 that I qualify for?," he wrote in an e-mail. "This seems illogical and I would doubt that it was the goal of Congress."

Others agreed and waited to see how the IRS interpreted the statute. But tax professionals say the statute's language is clear.

"Both taxpayers must qualify if you are married," says Mark Steber, chief tax officer for Jackson Hewitt Tax Service. "It's pretty black and white."

The language that required both spouses to be first-time homebuyers to get the $8,000 credit is nearly identical to the wording for the $6,500 credit, tax experts say.

While extending the homebuyer credit, Congress did raise the income limits for those buying houses after Nov. 6 so more people qualify. You can get the full credit - $8,000 or $6,500 - if your income is up to $125,000 for singles and $225,000 for married joint filers. The credit then begins to phase out and disappears once income tops $145,000 for singles and $245,000 for joint filers.

You must sign a contract to buy the house by the end of April, and close on the sale by the end of June.

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