Buying and Selling a Home

Q: What's the deal with credits for first-time home buyers?

A: If you buy a second home but keep the first one, you may qualify, provided you move into the new one. Income limits apply, but generally if you have owned and lived in a home for at least five consecutive years over the past eight and bought a new one between November 7, 2009, and April 30, 2010—or have one under contract and will close before July 1, 2010—you can get back 10 percent of its purchase price, up to $6,500.

If you're a first-time buyer or haven't owned a home in the past three years, you can get back 10 percent of the purchase price of a new home, up to $8,000. You can take advantage of this credit on your 2009 or 2010 return.

Keep in mind: You have to include a copy of your closing statement, so you won't be able to file electronically. And if you move within three years, you may have to give the money back.

Q: Let's say I sell my house for more than I paid (wishful thinking, I realize). Do I have to pay taxes on the capital gain?

A: You can exclude a gain of up to $250,000, assuming the home was your primary residence during two of the five years preceding the sale. And that amount grows to $500,000 if you are filing jointly as a married couple. The law was tweaked recently to require the seller to pay some tax on the capital gain if the house was used to generate rental income after 2008. Still, it's a handsome tax break.
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