To receive the $8000 tax credit, you must be a first time home buyer. And, as is widely reported, a first time home buyer is anyone who has not owned a home in the past 3 years. Simple enough. Right?
Well, no. My definition of not having owned a home in the past 3 years was simply calendar years. So if you sold a home in October of 2006, then rented, and are now closing on a new home in November of 2009, then you qualify for the tax credit as a first time home buyer. And, I was wrong.
Here is an email that I received from a recent client that I helped to finance a home:
I do have some unfortuante news relating to the First Time Homebuyer Credit. The IRS has denied my refund be cause I owned a home for one or two months in 2006. They require 3 full “tax years” to re-qualify. So, even though I qualified as a FTHB for the loan, I did not qualify for the tax refund. - Will
Turns out, the IRS defines the three years as being three tax filing years, not calendar years. An important and potentially expensive distinction. Now, for the $6500 tax credit for move-up buyers, you need to have lived in your home for 5 of the last 8 years. That seems more cut and dried, and not so open to interpretation. However, I wonder if you live in the home from December, 2004 to present, if the IRS would interpret that as 5 tax years as well?
I will try to get the answer, and post it here.
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