Homebuyers' credits for 2010
To qualify for the credit, you must have purchased or signed a binding contract to purchase a principal residence on or before April 20, 2010. If you sign a binding contract to purchase, your closing must be scheduled for a date on or before June 30, 2010.
Initially, the credit only applied to first-time homebuyers; an additional credit now applies to longtime homeowners as well. The distinction between the two will determine how much credit you're entitled to claim.
To qualify for the first-time homebuyer's credit, you must of course be a "first-time homebuyer," which is defined by statute as a buyer who has not owned a principal residence in the three years prior to the purchase. For married taxpayers, the restriction does take into consideration a home owned by a spouse (in other words, if you have not owned a home in the past three years but your spouse has, neither of you qualify). The maximum credit that can be claimed is $8,000, or $4,000 for married individuals filing separately.
A longtime resident of the same home can now qualify for a reduced credit of $6,500 (those filing as married filing separately are limited to $3,250). You can qualify for the credit if you've lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased.
For purposes of the credit, the IRS considers the home where you live "most of the time" as your principal residence. That means vacation properties, rental properties, or second homes would not qualify. But you are allowed to rent out part of your "main home" and still claim the credit, so long as you meet the other requirements.
The revised law also raises the income limits for those taxpayers who purchase homes after November 6, 2009. The full credit is available to individual taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for those married taxpayers filing jointly. However, no credit is available if the purchase price of the home exceeds $800,000.
The law also clarifies that taxpayers must be at least age 18 on the date of purchase to qualify for the credit. For married taxpayers, at least one of the taxpayers must be age 18. Additionally, you may not claim the credit if you are the dependent of another taxpayer.
For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return. For more information and restrictions, check out the instructions that accompany form 5405, which must be attached to your tax return.