First time home buyer credit - one buyer qualifies / one does not

[KJ Judd]

My client wants to help her son buy a first time home. Son would qualify for the first time home buyer credit. Mom would not.

The act says, "Under the new law, two or more unmarried individuals may purchase a residence and qualify for the credit. They must allocate the amount of the credit between them as the IRS prescribes. However, the total amount of the credit allowed to the individuals jointly may not exceed $7,500."

Do both unmarried individuals need to qualify for the credit? Also, I haven't seen any information on how "the IRS prescribes" the credit to be allocated. The wording of this makes me think it may be based on income or something other than ownership percentage.

[solomon]

My client wants to help her son buy a first time home. Son would qualify for the first time home buyer credit. Mom would not.

In what way is your client "helping" her son - merely giving him some down payment money?

[KJ Judd]

She would be co-owner with him.

[Bees Knees]

A taxpayer must qualify to claim a credit in order to claim a credit. A taxpayer must qualify to claim a deduction in order to claim a deduction. A taxpayer must qualify to exclude something from income in order to exclude something from income. A taxpayer must qualify to defer income in order to defer income.

Just because you give money to someone else who qualifies for a particular tax provision does not qualify you for that tax provision.

Example: You give your son $10,000 so that he can buy a new piece of equipment for his business. He in turn claims section 179 on the purchase of the equipment. Just because your son qualifies for Section 179, that does not mean you qualify for section 179. Each taxpayer must qualify on his/her own tax return in order to claim, deduct, exclude, defer, or do anything.

[BOB W]

The act says, "Under the new law, two or more unmarried individuals may purchase a residence and qualify for the credit. They must allocate the amount of the credit between them as the IRS prescribes. However, the total amount of the credit allowed to the individuals jointly may not exceed $7,500."

It seems like it is saying > 1 person can get the $7,500.

[Jesse]

Thoughts, no answers....

At a recent seminar we were told with two or more unmarried individuals that purchase a principal residence you could split the $7,500(or 10% of purchase price if less) credit as the individuals agreed as long as the total does not exceed the $7,500(or the 10% limit). The example given was if one of two qualifying individuals income was too high, the other individual could take the entire $7,500 (or the 10% limit).

I can't find anything to substantiate that claim. In Code Sec. 36(b)(1)(C) only states if two or more individuals who are not married purchase a principal residence, the amount of the credit allowed under subsection (a) shall be allocated amoung such individuals in such manner as the Secretary may prescribe, except that the total amount of the credits allowed to all such individuals shall not exceed $7,500.

Also no information pertaining to one of the purchasers being a nonqualifying purchaser. An article I came across and cannot for the life of me find had a tax planning tip for an engaged couple to purchase the home jointly in 2008 before they were married in 2009 Because he qualified for the credit, however she had just sold a primary residence in 2007. If they purchase jointly before getting married in 2008 he could take the credit, if purchased after married in 2009 no credit would be allowed.

[FEDUKE404]

More than one owner

The act says, "Under the new law, two or more unmarried individuals may purchase a residence and qualify for the credit. They must allocate the amount of the credit between them as the IRS prescribes. However, the total amount of the credit allowed to the individuals jointly may not exceed $7,500."

It seems like it is saying > 1 person can get the $7,500.

I believe the caveat is that each person must qualify for the credit (first-time homeowner, income levels not an issue, etc) AND then continue to live in the house as a primary residence. The maximum potential credit would have to be allocated between the persons involved, such as two singles who wish to buy "their" new home.

But there is more to the credit, which is a REAL cave of horrors, especially for anyone other than the original tax preparer (year of purchase) down the road. Remember, it's more of an interest-free "loan" than a credit, and the credit/repayment gets tracked for several years hence on the individual's tax returns. You can bet the IRS will be watching.

Other than the aforementioned income limits (for son), any sale of the home before the end of the "repayment" period would also muck up things.

One would think mom is probably out of the picture as a co-owner, either due to current income amounts or the fact that she may already own a home or the corresponding fact that she might not live in "her" new home. Also, I would assume her "help" would be more of funding than part-ownership.

FE

[KJ Judd]

Jessie & FE -

That is the $100,000 question. If both own (listed on mortgage & title), do BOTH need to qualify or can the son get a portion/all credit if he otherwise qualifies.

Mom's income will be too high & she owns another principal residence. But son will qualify.

[BOB W]

See page 4 item 18>>> (nobody knows)

http://www.irela.org/PDFs/September%202008%20Seminar/NAR%20Q%20and%20A%20on%20First%20Time%20Homebuyer%20Tax%20Credit.pdf

[solomon]

If the son is the equitable or beneficial owner (meaning he has all the burdens and benefits of ownership) then he is entitled to deduct mortgage interest and taxes. It does not matter if his mother is co-owner as long he is by definition the beneficial owner.

Consequently, I do not see why he would not be entitled to the first time home owner credit if in fact he is the only equitable owner.

[New York Enrolled Agent]

The Congressional Research Service has issued a report RL 34664 discussing the first time home buyer. You can google and get the entire 12 page document. I've pasted a small relevant snip from the paper. You will note that direction has not yet been given by the Secretary but CRS envisions that the DC home credit is useful as a guide (no assurances, of course). Form 8859 allows two unmarried individuals to split the credit any way they wish. This leads one to believe the full $7,500 can go to one individual as some in this thread have suggested.

[start]Dollar Limitation. The credit cannot be more than $7,500. For married
couples filing separate returns, it is limited to $3,750 each. When unmarried
individuals purchase property together, with each using it as a principal residence, the
total amount claimed between them cannot exceed $7,500. The law states that the
credit “shall be allocated among such individuals in such manner as the Secretary
may prescribe.” Currently there is no specific guidance to indicate whether the
credit would be allocated according to each individual’s legal interest in the property,
each individual’s financial contribution to the purchase, or the individuals’ own
determination of allocation. However, the instructions for Form 8859 — D.C. credit
— say that “[i]f two or more unmarried individuals buy a main home, they can
allocate the credit among the individual owners in any manner they choose” so long
as the total amount allocated does not exceed the allowable credit.[end]

[Kram BergGold]

NYEA nailed your situation

Assuming that Mom is not going to live in the house, then the son can only claim $3750 per the instructions in NYEA's post..

[MLINDER42]

1st time buyers credit

I read it that he can take the whole $7500 credit.It does not say he loses any if there are two owners as long as his half is over 75,000.I don't see that he losses anything. If he boughtit alone he would get the whole amount.

[Black Bart]

$3,750? $7,500?

...Currently there is no specific guidance to indicate whether the
credit would be allocated according to each individual’s legal interest in the property,
each individual’s financial contribution to the purchase, or the individuals’ own
determination of allocation. However, the instructions for Form 8859 — D.C. credit
— say that “[i]f two or more unmarried individuals buy a main home, they can
allocate the credit among the individual owners in any manner they choose” so long
as the total amount allocated does not exceed the allowable credit.[end]

I read it that he can take the whole $7500 credit.It does not say he loses any if there are two owners as long as his half is over 75,000.I don't see that he losses anything...

I read it the same as MLINDER, but you could take it either way I guess. While it says they can split it up as they choose, the next sentence says that's if it does not exceed the allowable credit -- Kram Bergold thinks that "allowable" means $3,750 in this case, so we're still at sea and unagreed on this.

[Bees Knees]

IRC Section 36(b)(1)(C)

‘‘(C) OTHER INDIVIDUALS.—If two or more individuals
who are not married purchase a principal residence, the
amount of the credit allowed under subsection (a) shall
be allocated among such individuals in such manner as
the Secretary may prescribe, except that the total amount
of the credits allowed to all such individuals shall not
exceed $7,500.

Since IRS has not yet issued regulations on this code section, there is no way to answer the question. The new IRS Pub 530 for 2008 says to see Form 5404 for details on how to claim the credit. Form 5404 and its instructions are not yet available on the IRS website. Therefore, as NYEA has suggested, any answer other than we do not know is a guess.