Homeowners credit

[Brian EA]

Tax Payer bought new home on 7/31/09. First time home buyer
Cost of home==$150,000
Parents paid $100,000 in cash and took a 2nd Mortgage on their primary residence, for $50,000
Tax payer is making the Mortgage payments on the $50,000.
The question is; Is the tax payer entitled to the first time homeowners credit.

thanks
brian

[AuditorTurnedGood]

So the parent bought it and the taxpayer is "buying it" from them, essentially?

ATG

P.S. Where do I apply for a set of parents like this?

[Brian EA]

[QUOTE=AuditorTurnedGood;85669]So the parent bought it and the taxpayer is "buying it" from them, essentially?

ATG

The tax payer does not have to repay the $100,000. All shs is paying is the $50,000 on the 2nd Mortgage

[AuditorTurnedGood]

Is there any formal documentation of this arrangement? Even if there is a true purchase here, she is buying it from a related party, which disqualifies taxpayer for the FTHB credit.
From TTB updates:

"Related party purchase. Property acquired from a related person does not qualify for the credit. A person is treated as a related person if the relationship would result in the disallowance of losses under Section 267 or 707(b). In applying section 267(b) and (c) for purposes of this rule, paragraph (4) of Section 267(c) is treated as providing that the family of an individual shall include only his or her spouse, ancestors, and lineal descendants."

ATG

[MLINDER42]

home owners credit

The house was not bought from parents.The parents just borrowed the money and paid for the house.If house is titled in childs name they are entiteled to credit.Shr bought the house.

[AuditorTurnedGood]

It seems we can have it one way or the other:

1. The parents bought the house, and the kid is living in it. Regardless of whther the child is paying the loan, the parents were still the purchaser.

2. The parents bought the home and the child is buying it from them for 50K. In that case, it is a related party sale and doesn't qualify.

Whether the child is in title on the property or not seems irrelevant when you look at the economic substance of the transaction.

[MLINDER42]

Homowners Credit

If the HUD-1 only shows the childs name not the parents than she is the buyer.How she pays for it does not matter.Only the parents should fill out a gift tax return next April

[AuditorTurnedGood]

Yes, but

if the home purchase is going to trigger a gift tax return on the part of the parents, doesn't that mean that the purchase of the home is by definition a gift, not a purchase by the child? We may need some more facts from the OP in this case. I would think it all hangs on who is on the HUD and how the funds were paid (directly to the title company or from parents to child to title company). But here's another example:

My dad buys me a truck for my schedule C business and puts it in my name only. It qualifies for the Section 179 deduction. I am under no obligation to pay him anything. Do I get the Section 179 deduction even though I didn't actually buy it?

[Brian EA]

If the HUD-1 only shows the childs name not the parents than she is the buyer.How she pays for it does not matter.Only the parents should fill out a gift tax return next April

The childs name is on the HUD-1.

[Gretel]

if the home purchase is going to trigger a gift tax return on the part of the parents, doesn't that mean that the purchase of the home is by definition a gift, not a purchase by the child? We may need some more facts from the OP in this case. I would think it all hangs on who is on the HUD and how the funds were paid (directly to the title company or from parents to child to title company).

Had the parents gifted the money ($100,000) one month before the closing there would be no doubt that child qualifies for credit limited to $50,000. If titled in child's name only I think it would be the same.

My dad buys me a truck for my schedule C business and puts it in my name only. It qualifies for the Section 179 deduction. I am under no obligation to pay him anything. Do I get the Section 179 deduction even though I didn't actually buy it?

Section 179 has rules, one of them being that only what you (Schedule C) pay for it qualifies. However, if you convert this gifted truck from your personal truck to your business truck you can take depreciation. Basis equals the lower of cost (dad's costs) or FMV on date of transfer.

[DonPriebe]

I don't think any of these analyzes were totally correct. Here's what I see ...

Parents make a gift of $100K to kid. Parents must file gift tax return.

Parents make a loan of $50K to kid, using money they obtained from a HELOC. Kid pays the loan back by sending money to the bank each month to pay off the parents' HELOC obligation. Parents have pledged their house as security for the loan, but are not actually paying any interest, so probably no Schedule A deduction allowed. [But if kid sent the money to parents and then they sent it to bank, the deduction would be allowed (to parents), but they would also have interest income in same amount. So arguing substance over form ... ]

Kid buys a house for $150K cash. Assuming other conditions were met he should qualify for the full $8,000 credit.

[S T]

Complicated Issues

I think for the FTHBC - we have to look to the escorw papers and how the closing takes place.

What this OP represented was parents gifting something (maybe) and that is another issue that should not affect (I don't think the FTHBC).

Brian EA, I think you need to provide us with the transfer of money, and the Escrow. Is the escrow shown in the daughter's name, with a credit for deposit $$(maybe as a loan or gift)

Is the $50K loan in the daughter's name and not the parents name???

What do the property tax rolls show as to the owner of the property and recorded deed? What does the grant deed show as to ownership?

I might be wrong, but somehow I think from the OP that these were just very generous parents and were able to afford $100K for their daughter to buy some real estate.

Sandy

[solomon]

Kid buys a house for $150K cash. Assuming other conditions were met he should qualify for the full $8,000 credit.

..................
Agreed.

[AJsTax]

Examples

Look at the examples on the IRS page.
You can have co-owners and if one qualifies and the other does not, the one can get the entire credit. and Parents are used as a specific example to help purchase the home as long as they did not own it themselves prior to this transaction.

[Brian EA]

Look at the examples on the IRS page.
You can have co-owners and if one qualifies and the other does not, the one can get the entire credit. and Parents are used as a specific example to help purchase the home as long as they did not own it themselves prior to this transaction.

AJ, I cant find those examples you are talking about.
Incidentally, I just received a fax copy of the HUD-1 Statement. The parents names are also on the statement. It reads; John and Jane Doe and Joan Doe.
It is beginning to become a nightmare.