Homebuyer Tax Credits and Unmarried Couples

Unmarried couples in Iowa, and people who are considered unmarried by the federal government (i.e., same-sex couples married under Iowa law) may be able to take advantage of the homebuyer tax credits in ways that married couples cannot. As most of us know, there are two credits available, one for first-time homebuyers and one for long-time homeowners who buy a new house. First-time homebuyers can receive a credit of up to $8,000 for the purchase of a new home, while long-time homeowners can receive a credit of up to $6,500.*

A first-time homebuyer is defined as someone who has not owned a home in the three-year period that ends on the date the new home is purchased. A long-time homeowner is defined as someone who has owned and lived in the same home for at least five consecutive years out of the eight years ending on the date the new home is purchased.

The issue gets complicated when two people buy a home together, and one person qualifies for the first-time homebuyer credit and the other person qualifies for the long-time homeowner credit. For married couples, if one spouse qualifies for one credit and the other spouse qualifies for the other credit, then neither credit is available to the couple. However, this is not the case when the two people are unmarried – or are considered unmarried by the federal government.

Here’s an example, to help make this a little clearer:

Taxpayer A and Taxpayer B, husband and wife, buy a house together. “A” qualifies as a first-time homebuyer; “B” qualifies as a long-time homeowner. Because they are married, they are unable to claim either credit.

Now let’s say “A” and “B” are unmarried. Because “A” qualifies as a first-time homebuyer, the $8,000 credit is available. Additionally, “A” and “B” can split that credit any way they want. The only catch is, “B” cannot receive more than $6,500 (the maximum amount a long-time homeowner can get). So “A” could claim the entire $8,000, or “A” could claim $1,500 and “B” could claim $6,500, or any other reasonable allocation, as long as the total amount allocated doesn’t exceed $8,000 and “B” doesn’t receive more than $6,500.

What is not allowed is for “A” to claim $8,000 as a first-time homebuyer and “B” to claim $6,500 as a long-time homeowner on the same property. The credit is limited to $8,000 total for the property.

As you can see, this can be a complicated issue that is best worked through with the help of a qualified tax advisor. And remember, to qualify for the credit, the purchase contract on the home must be signed by April 30th, and you must close on the home by June 30th.

*-The credit is limited to the lesser of 10% of the purchase price of the home, or $8,000/$6,500.

This article does not constitute tax advice. Because each person’s tax situation is unique, it is recommended that you contact a qualified tax professional for further assistance.