Home-buyer tax credit: Do you meet the time limit?

Updated 12:45 PM Monday, Nov. 9. The NAHB has updated their Web site with information on the new home-buyer credit. 

When President Obama signed an extension and expansion of the home-buyer tax credit into law Friday, he gave Realtors, homebuilders, and prospective home buyers a reason to cheer.

But the legislation also has many Monitor readers asking questions about whether or not they can take advantage of the offer — a tax incentive of up to $8,000 for new home buyers and $6,500 for those who have lived in the same home for five or more of the last eight years (more on this in a second).

On to the questions, with special thanks to Robert Dietz, an economist with the National Association of Home Builders (NAHB), for his expertise.

1. Michele: "My husband and I sold our house, which we resided in for 5.5 years in April and we have been renting since. We would have an offer on a house now (short-sale) so may not close until February. Would we qualify? As we are not currently owners, but renters. It’s a little confusing with some of the wording, when it says 'you must have occupied the home you owned for 5 of the last 8 years.' This almost seems to include renters, as well."

And along the same lines:

Michael: "How to calculate 5 years. From the closing date when I bought to closing date when I sell?

Answer: To unravel this one, start at the date that you purchase your new home. Count back eight years. If any time during the intervening period you counted the same home as your primary residence for five consecutive years, you would qualify for the tax credit. The IRS determines primary residency by a mix of factors including whether you used it as your tax address, your paychecks were sent there, and major utility bills were registered there. Under these general principles, someone in Michele's position should qualify.

2. Jessica: "My husband and I just sold our house in March 2009 and have been renting until he was settled in a new job. We are now ready to purchase another home. We owned our last house 3 years 8 months and prior to that owned two separate houses totaling 8 years. Would we qualify for the tax credit?"

Answer: The five-year provision means five years in a single residence. Adding up different home ownership periods is invalid, Dietz says.

3. Bart: "I bought my house in March of 2008. Do I qualify? I’m only 25 and I’m new to all this."

Answer: The bill has no “grandfather” clause, Dietz says. “If they’re an existing homeowner, and they’ve closed prior to the date of enactment, when the president signs the legislation, they simply do not qualify.”

4. Mike: "We are building a new home as a replacement home for a house we have lived in for the past 9 years. We have already signed a contract for the house, and we will soon close on his new house (after the bill has been signed into law). We were told by our lender that because we own the lot we would not be eligible. Is this the case?"

Answer:It depends on whether you will occupy the home as your principal residency before the bill's sunset date of April 30, 2010. If so, then you can claim the credit. If not, then you are out of luck. More broadly, those who own the lot and simply contract with a builder to construct the home — that is, the home is not actually sold from the builder to the homeowner — to qualify, the eventual homeowner must occupy the residence prior to May 1, 2010 (or have a binding agreement by May 1, and occupy before July 1, 2010). Generally, Dietz advises being careful taking tax advice from a lender and instead consulting a certified public accountant.

...And one from Twitter:

5. LadyBugMee: Does the new tax credit phaseout amount (i.e. $125,000 [adjusted gross income] for single taxpayer) apply to the previous $8,000 homebuyer tax credit?

Answer: Once the President signed the legislation Friday, the new caps on income came into effect. These caps are $125,000 for a single filer to get the full payment and $225,000 for joint filers, although increasingly smaller benefits can still be had up to $20,000 above those figures.

Further, only homes priced under $800,000 qualify.

For a handy sheet that compares the two periods of the incentive program, see here.

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Want more on the home-buyer credit or the economy more broadly? Get more:

What the $6,500 homebuyer tax credit means for you

Home-buyer tax credit: more questions answered

After dismal jobs report, unemployment rate could hit postwar high

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— David Grant is a Monitor contributor. Continue the conversation – and questions – on Twitter.