Thursday, November 19, 2009

Do I need to sell my house to get the $6,500 tax credit?

(Revised and Updated 11/19/09 at 5:00 PM)

As we discussed here, the First Time Homebuyer Tax Credit was extended and expanded on November 6th. Of the many questions posed by passage of this bill, the one that we have been asked the most is, "Does a taxpayer need to sell his existing house to be eligible for the $6,500 'step-up' tax credit?"

It appears the IRS just recently added the following Q&A item to their FAQ document, and the answer is: NO.

"Q: I’m already a homeowner. If I buy a replacement home after Nov. 6, 2009, to
use as my principal residence, do I have to sell my home to qualify for the homebuyer tax credit?

A: If you meet all of the requirements for the credit, the law does not require you to sell or otherwise dispose of your current principal residence to qualify for a credit of up to $6,500 when you buy a replacement home after Nov. 6, 2009, to use as your principal residence. The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence on or before April 30, 2010, and close on the home by June 30, 2010. Additionally, you must have lived in the same principal residence for any five-consecutive-year period during the eight-year period that ended on the date the replacement home is purchased. For example, if you bought a home on Nov. 30, 2009, the eight-year period would run from Dec. 1, 2001, through Nov. 30, 2009."

You should still have your clients seek the advice of a trusted tax professional before making such a decision if the tax credit weighs heavily on her list of reasons to buy or not to buy. Have the buyer provide the CPA with the exact situation, and ask them to research before making the decision!

Thank you to James Carroll and Marney Kirk for the information you provided to help with this post.