$6,500 Tax Credit Concerns

DEAR BENNY: My wife  and I are considering a move to Arizona.  As we have lived in our current townhome for six years, I am sure we would be  eligible for the homebuyer credit of $6,500.

What I cannot find is any  reference about if and when we must sell our current home.

Can we buy a  replacement home by the cutoff date of April 30, 2010, then sell our current  residence later in the year? Or if we make the new house our principal  residence, are we required to sell our current residence at all? –John

DEAR JOHN: According to the Internal Revenue Service, you do  not have to sell your current house — which must have been owned and used as a  principal or primary residence for at least five consecutive years of the  eight-year period ending on the date of purchase of a new home as a primary  residence — in order to take advantage of the new $6,500 tax credit for repeat  homebuyers so long as the new house becomes your primary house.

There are, however, some additional limitations. While you do not have to purchase a home that is more expensive than your current home to  qualify for the credit, if your new home costs more than $800,000, you are not eligible for that credit.

There are also income limitations. For single taxpayers, you  cannot make more than $125,000 annually; for married folks, you cannot earn more  than $225,000 if you file a joint tax return. There is a phase-out until your  income reaches $145,000 for a single taxpayer or $245,000 for joint tax filers.  This means that the credit is reduced proportionately until you reach the  ceiling cap.

You cannot purchase the new home from family members, which  includes parents, grandparents or children.

And finally, the purchase must take place by April 30, 2010.  However, if you have entered into a binding contract before that date, you must  settle (go to escrow) by June 30, 2010, or you will lose this credit.

This is my opinion; I suggest you consult your own tax  advisors for specific advice.

Benny L. Kass is a  practicing attorney in Washington, D.C., and Maryland. No legal relationship is created  by this column. Questions for this column can be submitted to [email protected].
Copyright 2010 Benny L. Kass

To subscribe to our blog, click here.