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Consumer Watch: 5 years in house required for tax break

Jan. 15, 2010 - 10:34AM   |   Last Updated: Jan. 15, 2010 - 10:34AM  |  
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A Marine gunnery sergeant asked whether he qualifies under a change in law that allows long-term homeowners to get tax credits of up to $6,500 when they purchase new residences.

Gunnery Sgt. Matthew Anderson has owned and lived in his home near Camp Lejuene, N.C., for three years, and now has orders for a permanent change-of-station move. But he doesn't qualify for the tax break because he hasn't lived in the home for any consecutive five-year period during the eight years before buying his next residence, according to the Worker, Homeownership and Business Assistance Act of 2009, signed into law Nov. 6.

The benefit for repeat home buyers is available only to eligible taxpayers who buy, or enter into a binding contract to buy, a principal residence by April 30 and close on it by June 30.

Anderson wasn't looking for a loophole; he just wanted to make sure he understood the law. He raised a good question about this benefit that might help a lot of military families. "I can't imagine staying in the same home for five years while I am on active duty," Anderson wrote. "In the Corps, that's a quarter of a career."

He noted that in his first five years of active duty, he lived in Georgia, California, Florida and North Carolina. The law extends the previous tax credit, which was limited to first-time buyers in the same time frame, to repeat home buyers. The credit is for 10 percent of the purchase price, up to $8,000 for first-time buyers and $6,500 for repeat buyers. No credit is available if the purchase price is more than $800,000.

It applies only to homes used as the principal residence, and it reduces the tax bill or increases the refund, dollar for dollar. The credit is claimed using Form 5405, filed with the tax return. For qualifying purchases in 2010, taxpayers have the option of claiming the credit on either their 2009 or 2010 tax return.

The law does extend some benefits specifically to service members and certain other federal employees. First-time and repeat buyers who are serving outside the U.S., or have served outside the U.S. for at least 90 days between Dec. 31, 2008, and May 1, 2010, have an extra year to buy their first home and take advantage of the tax credit. This extra year won't help Anderson, but it could bump other military members into qualifying under the five-year requirement for repeat buyers.

Lawmakers also have waived the credit repayment requirement for military members, Foreign Service personnel and employees of the intelligence community. In most cases, that means those who receive government orders and sell the home — or drop the home as their permanent residence — after Dec. 31, 2008, do not have to repay the credit.

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Questions? Comments? E-mail staff writer kjowers@militarytimes.com?subject=Question from ArmyTimes.com reader">Karen Jowers at kjowers@atpco.com">kjowers@atpco.com.

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