Community Property Rules

[GTS1101]

I have a client who lives in California which is a community property state. They were married in 2008 and in May 2009 they purchased a new home as a first time home buyer and got the 8,000 credit. The house was purchased in the name of the husband only. He was the only one on title and the only one on the loan. They filed jointly and received the credit on a joint return. I would assume then because they bought when they were married that the property is community property even though it was bought in the husband's name only?

Now in 2011 the they have decided to get a divorce. From what I understand if the wife transfers the property to him in the divorce than he does not have to pay back the 8,000 unless he moves out within the three year period of the original purchase date. I don't know how she would transfer property not in her name? Any thoughts?

GTS1101

[jimenright]

I believe

recapture of the credit is triggered when the home is sold. If the home is transferred to either spouse as the result of a divorce, then there is no recapture unless the spouse who owns the home sells it within three years. I doesn't look to me like the community property rules have any part in it unless the home is sold to another party.

[appelman]

Could be considered husband's separate property,

depending on where the funds used in the purchase came from. But, as jimenright says, community property rules shouldn't come into play.

[joanmcq]

Title doesn't matter in community property. If the property was paid for by community funds, which include payments made with wages earned while married, it is community property. Unless the husband paid for the house in cash with sole and separate property funds (and comingling funds will change previously separate to community property), the house is community. she will most likely have to file a quitclaim to clear title to him.

If either one stays in the house for 3 years, no recapture, as said before.