00 First Time Home Buyer Tax Credit Questions Continued

Q: We wrote an offer to purchase a house on April 25. After negotiating back and forth, we finally completed negotiations today, May 7th. Since the initial offer was dated April 25, would we still qualify for the 1st time buyer tax credit?

A: You were supposed to have a valid, binding contract in place by April 30. Even with the binding contract, you’d have to close by June 30.

If you were merely negotiating for a home and there was no valid contract as of April 30th, you probably will not qualify for the first time home buyer tax credit or the move up home buyer tax credit.

Having said that, there are places in the United States in which an “offer to purchase” is made for a home that is accepted by the seller, but a purchase and sale agreement isn’t signed by the parties until it’s negotiated by the attorneys. In that case, if the offer to purchase is deemed to be binding on the parties, you may have a chance of claiming the tax credit.

You should proceed and see if you can close on the property by June 30. The IRS will require, however, a copy of the settlement statement from your closing with your tax return. I don’t know how far the IRS is going to go in investigating whether you have a valid and binding contract in place as of April 30, 2010.

For sure, if you can’t or don’t close by June 30, then you’ll be out of luck and the date of the contract won’t matter.

Q: What happens if my current home has been a rental and the homeowner has not lived in it for a five-consecutive-year during the eight-year period? Will the homeowner who had just purchase a new house in another state (as a primary place of residence) qualify for a home buyer tax credit? If so, which one? The $8,000 first-time home buyer tax credit or the $6,500 long-term homeowner tax credit?

A: I’m a little confused by your question, because it seems as though we’re not talking about you – we’re talking about your landlord.

In any case, if you have not owned a primary residence for the past 3 years, whether you have owned one before that is irrelevant, you would be considered a first-time buyer for purposes of the home buyer tax credit.

If you owned a primary residence 5 years ago, and then rented it out while you lived at home with your parents, you would also be considered a first-time home buyer even though you owned a rental property.

The only way to be considered a long-term homeowner is to have lived in a primary residence that you owned for 5 consecutive years out of the past 8 and then have bought a new home within the timing deadlines, as well as meet a number of other requirements.

Hope this helps.