By Benny Kass, Tuesday, January 5, 2010.
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.