FTHB Relationship issue

[lenboush]

I have a client who may (or may not) qualify for the First Time Homebuyer Credit. She meets all qualifcations with one potential exception. Here is her situation.

She and her husband rented a home from the husband's mother for several years. The taxpayer's husband DIED in 2007. In 2009, the mother-in-law sold the home to the taxpayer.

The taxpayer now files as a single individual since her husband passed in 2007 and there are no children to qualify her as a Qualifying Widow.

Here is the question.

Since she no longer has a husband, does she qualify for the First Time Homebuyer Credit under the relationship rule?

Or does the relationship survive the death which would cause her to be ineligible under the relationship rule?

The only thing I can reference to this at all is in The TaxBook, Section 3, Page 18 (middle of the right column) where the relationship issue is discussed as it relates to Dependents. I can find no reference anywhere as to whether the same principal applies in other situations.

Since FTHB's are examined so closely, I do want to find a difinitive source.

Thanks for any assistance you might be able to offer!

[solomon]

I do want to find a difinitive source.

§36(c) (5) would be definitive.

(5) Related persons
A person shall be treated as related to another person if the relationship between such persons would result in the disallowance of losses under section 267 or 707 (b) (but, in applying section 267 (b) and (c) for purposes of this section, paragraph (4) of section 267 (c) shall be treated as providing that the family of an individual shall include only his spouse, ancestors, and lineal descendants).

There is no mention of the dependency relationship after death - thus the credit should be available would it not.

[spanel]

If it follows the same rules as a dependent... "relationship doesnt end by death or divorce"

Chris

[solomon]

If it follows the same rules as a dependent... "relationship doesnt end by death or divorce"

Chris

The poster knows that - lenboush wants a definitive source.

[taxmom34]

don't know if this applies or not, but is mother-in-law considered a relative and can she buy from her mother-in-law? i'm asking because my sister can't sell her home to her son for him to get the credit

[spanel]

don't know if this applies or not, but is mother-in-law considered a relative and can she buy from her mother-in-law? i'm asking because my sister can't sell her home to her son for him to get the credit

Yes it is. Mother-in-law implys its the spouses parent.

chris

[taxmom34]

after thinking about what OP stated, client or her husband did not own the house, so , that part of the qualifications doesnt even apply. this couple were renting not owning. the relationship to the seller is another question. (as i pointed out in previous post)

[lenboush]

Response from the IRS

Response from the IRS

NOTE: Thank you for your inquiry. Our response to your tax law question
appears below. I hope this information has been helpful. If you have a
follow-up question or another general tax law question, please return to
our web site at: www.irs.gov.

Please do not use your "reply" button to respond to this message. More
helpful information is provided at the end of this message.


Your Question Was:
I have a client who may (or may not) qualify for the First Time
Homebuyer Credit. She meets all qualifcation with one potential
exception. Here is her situation. She and her husband rented a home
from the husband s mother for several years. The taxpayer s husband
DIED in 2007. In 2009, the mother-in-law sold the home to the taxpayer.
The taxpayer now files as a single individual since her husband passed
in 2007 and there are no children to qualify her as a Qualifying Widow.
Here is the question. Since she no longer has a husband, does she
qualify for the First Time Homebuyer Credit under the relationship rule?
Or does the relationship survive the death which would cause her to be
ineligible under the relationship rule? Thanks for your assistance!
Lennox Boush, EA


The Answer To Your Question Is:
Thank you for your inquire dated October 19, 2010. I apologize for the
lengthy response to your question; all related issues that relate to
your situation must be addressed. You stated her husband passed away in
2007, and she purchased a home from her deceased husbands mother in
2009. Your question refers to the relationship rules regarding husbands
mother and if still considered her parent-in-law. Based on this
situation, since her husband passed away in 2007, she is no longer
considered a daughter-in-law of her deceased husband.

Assuming she meets all of the other written requirements, she is not
considered a related person and qualifies for the First Time Homebuyer
Credit.

If you have a follow up question to another general tax law question,
please visit out web site (www.irs.gov) to submit it. Please do not use
your reply button to respond to this message. This E-mail is non
returnable and will not accommodate replies because of current
limitations to our system.



References: American Recovery and Reinvestment Act (ARRA)/ Worker,
Homeownership, and Business Assistance Act (WHBAA) of 2009/2010
Resources. Instructions & Form 5405, First Time Homebuyer Credit and
Repayment of the Credit.

[appelman]

I'm not sure the IRS guy got it right.

From Pub. 501:

"Relatives who do not have to live with you. A person related to you in any of the following ways does not have to live with you all year as a member of your household to meet this test.
Your child, stepchild, foster child, or a descendant of any of them (for example, your grandchild). (A legally adopted child is considered your child.)

Your brother, sister, half brother, half sister, stepbrother, or stepsister.

Your father, mother, grandparent, or other direct ancestor, but not foster parent.

Your stepfather or stepmother.

A son or daughter of your brother or sister.

A brother or sister of your father or mother.

Your son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.

Any of these relationships that were established by marriage are not ended by death or divorce."

I don't see why that last line shouldn't apply to the present case.

Incidentally, how did you manage to get online IRS help? I thought they had discontinued that years ago? As I remember, you always had to take the responses with a grain of salt.

[solomon]

I don't see why that last line shouldn't apply to the present case.

Because Publication 501 and IRC §36 are horses of a different color.

[lenboush]

From Pub. 501:

Incidentally, how did you manage to get online IRS help? I thought they had discontinued that years ago? As I remember, you always had to take the responses with a grain of salt.

I figured even if the IRS gave me an inaccurate answer, I could at least show that I had made strong attempts at due diligence if the return was audited. As it happens, the response agreed with my own viewpoint as well as the majority of others whose input I had received.

You can still get e-mail questions answered at http://www.irs.gov/help/page/0,,id=120294,00.html

They may take a few days to respond.

[appelman]

It looks like Solomon is right!

The instructions to Form 5405 refer you to p. 23 of Pub. 544:

"Related persons. The following is a list of related persons.
1. Members of a family, including ONLY brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.)." (The emphasis is mine.)

Which indicates that an in-law is not a relative at all for this purpose! So all the agonizing was unnecessary, and the IRS response was, at best, imprecise. Live and learn!

However, I do believe that for any case in which an in-law IS considered a relative, death will NOT end the relationship.

[Davc]

"Based on this situation, since her husband passed away in 2007, she is no longer considered a daughter-in-law of her deceased husband. "

Huh?