Are You A First Time Home Buyer? Are You Sure?

Being a first time home buyer can be a lucrative proposition these days. But just who is a first time home buyer? Conventional wisdom would say that it is someone who is buying a home for the first time. And conventional wisdom would be correct, but only partially. Thanks to the wording associated with the tax credit offered by our government beginning in April, 2008 and later revised for the latter part of the year forward to November 30, 2009, that may or may not be true.

First, what is the tax credit everyone keeps talking about? Well, it started out as a "tax credit" of 10% of the purchase price of your new home, up to $7,500. The reason for the quotation marks is, although you did get the credit from the government from filing the proper tax forms after purchasing your home, you have to pay it back. It is interest free and is paid back over 15 years at $500 per year. If you sell your home in less than two years, you may be hit for the entire amount back at one time, depending on if you made a profit or loss on the sale.

The revised tax credit, the current one, differs in some key areas. It is still a credit of 10% of the purchase price of your new home, but now the max is $8,000. This credit is not a long term, interest free loan however. It is completely forgiven once you have lived in your home for three years. Sell early, and you may find yourself with a hefty tax liability depending on your situation. If you have already, or plan to take advantage of this tax credit, and will not be in the home for three years, you should speak to an accountant about your options.

But that brings us back to just who is a first time home buyer. Well, the definition as I understand it is, "Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase." So, the individual who has never owned a home does qualify. But if you are married, and you have never owned a home, but your spouse has owned a home in the past, and it has been less than three years ago, you do not qualify. But if your spouse owned property 37 months ago, you do qualify. I imagine some of you may be counting the months back now either for yourself or your spouse. But wait, it gets even better!

Let's say you currently own a home in another state. You transferred in 3 years ago and put your home on the market, it didn't sale, so you found a renter to defer the cost of a house payment and the rent you found yourself paying. This is unfortunately a very real reality for many people. But now you will be glad to hear that you too are considered a first time home buyer under this program! The key is in the description above that states "principal residence." Now just in case you are wondering, that is a direct quote from the "IRS First-Time Homebuyer Credit Questions and Answers: Basic Information" page found at irs.gov.

What if that home that I owned as my pricipal residence within the last three years was not in the U.S.? What if I left my island paradise to live here in the U.S. last week after I owned my villa on ocean front? (it could happen, right?) Well, you to can take the tax credit, even if you sold the home last week! The rules plainly state, "A taxpayer who owned a principal residence outside of the United States within the last three years is not disqualified from taking the credit for a purchase within the United States."

Another possible scenario is you own an interest in a home that a relative occupies. Maybe you received the home as part of a living will with the relative retaining life time rights. Well, if you do not live with them, then this is not your principal residence. And if you did not have an ownership in any other property that was your principal residence, you qualify.

What if you want to buy a home, but you do not qualify right now for a typical mortgage, but find someone who is willing to offer "Owner Financing?" Well, you to are in luck! A new revision to the tax credit bill in July, '09 states that, "If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property."

Okay, I know you are waiting for this one. If you own, or have owned in the past three years, an interest in a mobile or manufactured home, that was placed on a rented lot or in a park? Well, since the home is titled as an automobile, just like an RV or pop up camper, my gut says yes, you can. But as a REALTOR®, I must advise you to discuss that with your accountant.

In fact, everything here should be discussed with your accountant if you plan to, or would like to take advantage of this great opportunity to purchase a home! There are many things that can influence your personal situation to allow or disallow your ability to avail yourself of this credit. Once your accountant gives you the green light, consult a REALTOR® in your area as to the next step. By the way, did I mention that I am a REALTOR®?