One source of confusion in the homebuyer tax credit is over how married couples are treated. I've received lots of emails about this particular point, including this question from Nick,
"I was recently married in May 2009. I have never owned a home. My wife has owned a home within the past three years. Can I still qualify for the tax credit if I buy the house myself?"
Initially, the homebuyer credit was designed for "first-time" homebuyers. Recently, Congress revised this tax credit as part of the Worker, Homeownership & Business Assistance Act of 2009 to extend the tax credit to "long-term residents" who buy another primary residence. So we'll address two separate questions: (1) whether you would qualify as a "first-time homebuyer," and (2) whether you would qualify as a "long-term resident homebuyer."
A first-time homebuyer is someone who has not owned a primary residence in the three-year period ending on the date of purchasing the home. Married couples are considered first-time buyers if neither spouse has owned a residence in the previous three years. This second part of the definition has caused quite a bit of confusion. The relevant portion of the tax law is Section 36(c)(1) of the Internal Revenue Code which reads:
"The term 'first-time homebuyer' means any individual if such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which this section applies."
Nick mentioned that his wife has owned property in the last three years. If that property was the wife's primary residence, then neither Nick nor his wife would qualify as "first-time" homebuyers. The determination of whether you qualify for the credit is made on the date of purchase. So if Nick had purchased the home before he got married, he would qualify for the credit. (Source: First-Time Homebuyer Credit: Scenarios #1 and #4, IRS.gov).
However it might be possible for Nick and his wife to qualify as "long-term resident homebuyers." To be considered a long-term resident, the individual needs to have owned and lived in their residence for at least five consecutive years in the eight-year period that ends on the purchase date of the new property. If the taxpayers are married, then this definition applies to both of them, even if only one buys the property, just like with the definition of a "first-time" buyer. If Nick's wife has owned and lived in her property for at least five years, then they would qualify for a tax credit worth up to $6,500.
One final possibility: Nick mentioned only that his wife "owned a home." He didn't say whether this was her primary home. If the house was an investment property, or a rental, or a vacation home, it is possible that both Nick and his wife might qualify as first-time homebuyers.