Long time resident credit

[Outlookgal]

Husband job transferred him to another state. He purchase home there in his name in
2009. Filed joint return with wife in 2009 claiming credit. Wife stayed back in Ohio to sell there home here...........................She is just moving there now in 2011 Of course she has been there and they have moved some personal items. Will this effect the repayment of the credit because she hasnt lived there? He is living and working there. IRS sent statement showing credit was 50% for each of them. I really appreciate all comments and help.

[Koss]

Questions

Did they claim the credit of $7500 that must be repaid?

I just want to make sure that we're talking about the same thing, here...

If they claimed the credit on the 2009 tax return, then that sounds like the credit that does not have to be repaid. Unless the home ceases to be the taxpayer's principal residence during the applicable three-year period. And it sounds like that's what you're concerned about, since it could be argued that the wife has never occupied the new home.

I am curious to know more about the "statement" provided by the IRS, which you said was "showing 50% for each of them." Can you cite specific language from this statement? I'm not saying I don't believe you, because you've probably read it. But I'd like to know more about the context in which the IRS is asserting that the credit is "50% for each of them."

I'm raising this question because I have never seen such a statement from the IRS. When the credit is claimed on a joint return, I don't think the credit is allocated between the two spouses in any way whatsoever, until and unless there is some sort of event that triggers a need for such an allocation, such as the sale of the home before the end of the three-year period. But even then, I don't see how an allocation would be applicable unless the spouses file separate returns for the year in which repayment is required.

It sounds like you're asking whether repayment is required by the wife, since it appears that she has not occupied the new home as her principal residence.

That's an interesting question. You probably won't like my answer.

My answer is that there is no answer.

You're in uncharted waters. The long-time resident credit is based on a law that was only passed a couple years ago. The IRS guidance covers only the most basic scenarios, and I haven't heard about any court cases yet. It's too early. Maybe a few tax court petitions have been filed in cases where the credit was denied after a correspondence audit, but those cases are nowhere near the point where they will go to trial.

Your client's fact pattern is probably not unique. It is not unheard of for one spouse to "stay behind" to sell the house and wrap up personal affairs while the other spouses relocates for a new job. But I just don't think you're going to find any concrete guidance on how to apply the homebuyer credit to this scenario.

A joint return treats the couple as a unit for tax purposes. My personal take on this is that the couple moved to the new house. The fact that she stayed behind should be construed as a temporary absence from the principal residence, which is the new house, not the old house.

Here's an analogous hypothetical question for you:

Suppose she was working full time, and made about $18,000 during 2010. Suppose further that there are two young children. Finally, assume that the kids have been living with the wife since the husband moved to start his new job, where he made $80,000 during 2010.

Soooo... Husband and wife lived apart during the last six months of 2010, right? And the children lived with the wife.

HOH and EIC for her?

When pigs fly. They're not really separated. The fact that she is now moving to the new home proves that it was a temporary absence. This is not a "married couple living apart," for purposes of federal tax law.

BMK

[Outlookgal]

Koss--Thank you

I really appreciate your impute. Credit was taken in 2009. and was 4325. Letter she got from Irs didnt state the 50%. They were courtesy letters only. They said if within those 3 years your living stituatio changes and the home is no longer your primary residence,
you'll have to repay the entire credit. I agree with your illustration it gave me the laugh that I actually needed. Pub l7 page 251 does state if you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit. I talk with clients and they feel that her primary home
became Indiana when he purchased the home. She actually went there and spend the first night in the home with him. It was necessary for her to be in Ohiio due to selling the home and brother is ill. She does go to Indiana and spend time. Temporary absences
is what we have concluded.