Claiming the Credit by Jim Woodard on Creators.com

Recently

Renting Vs. Buying a Home Home sales are on an upward swing in most areas of the country, but the growth is slow. A key reason for the continued sluggishness of the home-buying market is the mindset of many prospective buyers that prices have not yet reached bottom. They are …Read more. Removing Homeowner Benefits Is Counterproductive When candidates for public office support the elimination of modification of certain homeownership benefits as a cost-cutting means, that action could cost them the election. Several recent studies have shown that an overwhelming majority of …Read more. Negotiating Real Estate Commissions As home sales continue to rise, questions about real estate commissions become more frequent and important to buyers and sellers. The most common question: What is the standard rate of commission in today's market? There is no standard rate of …Read more. Demand for Jumbo Mortgages Rising Applications for large mortgages are exceeding the number for modest mortgages in today's market. Mortgage bankers funded $26.6 billion of jumbo loans during the third quarter of last year. That's a 30 percent gain from the same period during the …Read more.

Claiming the Credit

Dear Edith: We are first-time buyers and just moved into our new home. How do we claim the $8,000 tax credit? — e-mail

Answer: You claim it on the federal tax return you're probably preparing right now. You can't file electronically. You'll need a paper return because you must include proof of your purchase, usually the HUD-1 settlement statement you should have received after the closing. You'll also need a new IRS form, No. 5405.

Purchasers who claim the repeat-buyer credit must also furnish proof that they owned their old homes for at least five consecutive years out of the eight years before closing. Past property tax, insurance or mortgage bills and receipts can be used as evidence.

RETROACTIVE TAX CREDIT

Dear Edith: My husband and I qualify in every way to get tax credit as repeat buyers, except that we closed on our new home on June 25, 2009. Is there any chance that the government will offer the tax credit retroactively, not just since Nov. 6, 2009? — J E.P.

Answer: The repeat-buyer tax credit is intended to stimulate more real estate activity. From the government's point of view, it wouldn't accomplish anything to extend it to a purchase you made in the past.

VACATION HOME CREDIT

Hi, there: My husband and I own our home. We have lived here for almost five years. We are considering purchasing a second/vacation home. Would we be eligible for the home buyer credit? — J. and T.S.

Answer: The repeat buyer tax credit, like the first-time buyer's credit, is available only for the purchase of your principal residence.

RECEIVED THE TAX CREDIT

Dear Edith: I recently bought a town house. It was my first home purchase, so I will be receiving the $8,000 tax credit. I thought it would be an amazing deal for resale. Most of the renovations will be complete in a few months. I want to put it back on the market, but people keep telling me because of the "capital gains tax?" to wait two years. I would have no problem doing that, except one of the drawbacks is little to no parking. I wouldn't mind selling before the two years is up and looking for another home.

I guess my question is about the capital gains tax.

Is it a big deal to sell before the two years? I have already put about $8,000 into the property for cosmetic renovations. — e-mail

Answer: You have two different tax situations to consider.

First, the first-time home buyer's tax credit is intended for the purchase of one's own home, not investment property. You'd have to repay the $8,000 credit if you sold the place or moved out within three years.

Then about capital gains — that's a tax on your profit when you sell. Most homeowners can avoid paying that if they have owned and occupied the place as a main home, a principal residence, for at least two of the five years before the sale. That's the two years people have been telling you about.

I'd be surprised, though, if you had enough profit to worry about selling in a year or so. Even in a normal market, you'd be lucky just to come out even, considering the legal and other costs of buying and selling, closing costs for your mortgage and the money you're spending on renovations.

OWNS MOTHER'S HOUSE

Ms. Lank: I have a question about my childhood home. The mortgage is completely paid and my mother lives there. She signed the house over to my brother and I over four years ago. Happily, she continues to be a healthy octogenarian living in the house now as a "renter," though she pays us no rent. She does pay for upkeep maintenance, such as repairs, and we split the property taxes three ways.

I have never bought my own home and am interested in whether I am still eligible for the new home buyer's tax credit given that I co-own this house with my brother. — H.S., Brockport, N.Y.

Answer: If you live in that house with your mother, you already own your principal residence and you could not qualify as a first-time buyer. If you've owned it for five years, you might qualify for a different tax break as a repeat buyer.

If you don't live there, though, you'd meet the definition of a first-time buyer, not having owned your own main home for at least the past three years.

In either event, you'd better get moving. To receive either of the current tax breaks, you must have a binding purchase contract in place by April 30, 2010.

Edith Lank will respond personally to any questions sent to her at 240 Hemingway Drive, Rochester, NY 14620 (please include a stamped return envelope), or readers may e-mail her at ehlank@aol.com.