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Repeat Homebuyer Tax Credit Creates Questions - 2009-12-13
If you read this column on November 29, then you saw my overview of the new Repeat Homebuyer Tax Credit. It's the new one, available to those buying a replacement residence by April 30, 2010. The credit amounts to 10 percent of your purchase price, up to a maximum of $6,500, and only applies to purchases of $800,000 or less. In addition, the credit is phased out for taxpayers whose income exceeds certain limits.

Because it comes on the heels of the extended First Time Homebuyer Credit, it has generated a lot of questions from my website. So here are some specific questions and answers:

Q: What is a "Repeat Homebuyer"?

A: Under IRS rules, you must have owned and occupied a home as your principal residence for at least five of the eight years immediately preceding your qualifying purchase. Your qualifying five year residence must be your most recent owned principal residence, meaning you may not have owned an intervening residence for less than five years and still qualify.

Your repeat purchase must be made between November 6, 2009 and April 30, 2010. If you have a valid purchase contract by April 30, you may close as late as May 31, 2010.

Q: If I live in a rental house in Atlanta, but have owned a vacation home at the beach for many years, will that qualify?

A: No, because the vacation home is not your primary residence. Your "principal residence" is usually the one where you spend the most nights per year, but there are other factors the IRS may consider, such as where you register to vote and the address on your drivers license.

Q: If I buy a qualifying replacement house and occupy it as my primary residence, am I required to sell my former principal residence?

A: No. There is no requirement that you sell. So you might choose to convert it to a rental property, or keep it as a secondary residence.

Q: Does my replacement residence have to be a traditional house?

A: Not necessarily. A condo or townhouse could qualify, as could a boat, a motor home, or even a trailer. It must have a kitchen, sleeping quarters and bathroom facilities.

Q: I heard that I am required to reside at the replacement residence for at least 3 years. What happens if I have to move?
                               
A: The amount of your entire tax credit will be added to your Federal income tax liability in the year that you move. In other words, you have to give it all back.           

Q: My neighbors and I have owned and resided in our respective homes for more than five years. Can we simply swap houses and still qualify?
           
A: Yes. I would recommend written sales contracts and a traditional closing, but there are no restrictions on neighborly purchases. However, you may not purchase your replacement residence from a lineal ancestor or descendant, including grandparents and grandchildren.

 
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