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President Obama's Home Buyer Tax Credit and Your Divorce

In February, President Barack Obama signed an economic stimulus bill which includes a hefty $8,000 first time home buyer tax credit.  This tax credit is refundable, meaning that tax filers will see a refund of the full $8,000, even if their total tax bill was less than this amount.  For example, if you normally owe $1,000 at the end of each tax season, this $8,000 credit will be offset, leaving you a nice refund of $7,000 for this upcoming tax year.

To qualify for the credit, your home purchase must be made between January 1, 2009 and November 30, 2009.  Buyers may not have purchased a home for the past three years to qualify as a 'first time' buyer.  You must also live in the newly purchased home for at least three years, or you will be obligated to pay back the credit.  Lastly, there are income restrictions: to qualify, buyers must make less than $75,000 for single filers.  Higher-income buyers may receive a partial credit.
 

So what does this mean for your divorce?

I see this tax credit as a great opportunity for individuals who are in the midst of a divorce litigation.  Due to this troubling economy, many of our clients are forced to remain in the marital residence because they cannot afford a place of their own.  This tax credit can be utilized to soften the burden of purchasing a new home and can be a key piece in starting your post-divorce journey.
 

Even if you purchased your current home (with or without your spouse), the 'first time' buyer designation will be awarded to you, as long you didn't buy the residence in the past three years.  However, I strongly suggest that you speak to your attorney before deciding to purchase a new home during your litigation.  Being that the credit will be applied to your 2009 taxes, it is important to make sure you will be filing 'single' for the tax year.  This means that you will have to be divorced by December 31, 2009.  I know this date seems quite far away, however, with a booked court calendar and those pesky unpredicted issues, getting divorced by this date may not be achievable.
 

While this tax credit may not apply to every divorce, under the proper circumstances, it may offer financial hope to litigants who are worried about the financial impact of purchasing their post-divorce residence.  As always, consult with a competent divorce attorney and a tax accountant before you decide to purchase a new residence under this tax credit plan.

Full post as published by New Jersey Law Blog on April 15, 2009 (boomark / email).