I was asked this question by one of my friends on Facebook:
"I was listening to one of your videos from last Monday and you mentioned something about a tax credit for people who has owned their homes for the past 5 out of 8 years… Do you know what that is all about yet?"
When the first time home buyer tax credit was extended with the "Worker, Homeownership, and Business Assistance Act of 2009", Congress added a few goodies, including increasing the qualifying income limits and allowing folks who have owned a home out of the past 5 out of 8 years to participate with a tax credit of up to $6,500. This tax credit has been pegged as one for a "move-up" home buyer, however it just needs to be a primary residence–it does not need to be larger or more expensive than the last residence. In the Act, these home owners are referred to as "long-time residents of the same principal residence".
One does not have to sell their current residence in order to qualify, from the IRS:
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 to use as your principal residence.
The IRS uses this example for occupying your home in the last five out of eight years:
The requirements are that you must buy, or enter into a binding contract to buy, the replacement principal residence after Nov. 6, 2009, and 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.
The tax credit is only valid for homes priced under $800,000. I'm not sure why they put this limit on the sales price when there are all ready income limits and limits to the amount of the tax credit in place. The upper end of the housing market can really use some help.
Qualifying adjusted gross income limits have been raised for first time home buyers and repeat home buyers to $125,000 for single people an up to $225,000 for married couples for the full tax credit.
If after 36 months from purchasing the home, if it ceases to be the residence that you occupy (you've sold the home or converted it to a rental, for example), the tax credit may be required to be repaid.
I don't recommend buying a home just because of the tax credit. There are costs to owning a home that will present themselves long you've enjoyed your $6,500. If you are counting on receiving the tax credit, do visit the IRS's site and make sure you will actually qualify by completing the proper form. I remember meeting with one of my clients who was buying her first home, when we reviewed the tax form together and she discovered she barely made too much money to qualify, she was disappointed. She did go through with her purchase and she loves her home…but knew before getting too far into a purchase transaction that she was not going to qualify for the $8,000 first time home buyer tax credit (she would now with the increased income limits).
Check out this FAQ for the Repeat Homebuyer Tax Credit for more information.