FTHB credit - one spouse moved out

[oceanlovin'ea]

Couple bought house and received FTHB credit of $6500 (10% of cost of home) in 2009. Only one spouse(spouse A) is on the mortgage. The other spouse Spouse B) was added to deed as a spouse.
Spouse B moved out of home in June of 2010. No reconciliation yet and probably not one coming.

I went to Form 5605 and filed in the part where the residence is no longer his primary residence. But none of the reasons given fit their situation. He didn't sell anything, convert to rental or lose house. He isn't responsible for the house at all. If I put in the information, it doesn't show him having to repay anything. Is this correct? Her mortgage broker told her that the credit was all on her because she was the only one on the mortgage. Those questions were never asked, I don't think.

I don't want him to have to repay but I also don't want to ignore something I should be doing and have them get letters down the road. Have I missed something?

Linda, EA

[Mo Sheets]

Does this help?

On the IRS website, there is a section titled "scenarios" and this is listed as #14:


S14. During their marriage, Taxpayer A and B purchased a home together and claimed the credit. Later they divorced and Taxpayer A transferred the home to Taxpayer B under the divorce decree. Taxpayer A did not keep any interest in the home. Are repayments waived for Taxpayer A?

A. If the home was purchased in 2008, Taxpayer A is no longer required to repay any remaining amount of the credit. Taxpayer B now is responsible to repay the entire remaining amount of the credit in equal annual installments. If they purchased the home in 2009 or 2010, and Taxpayer B sells or stops using the home as her main home the home within 36 months after the purchase date, Taxpayer B must repay the entire amount of the credit if there is gain on the sale of the home.

[oceanlovin'ea]

no sale

The difference is that there was no sale and no divorce. Spouse A still lives in the house. Mortgage is in the name of Spouse A.

They file MFS returns now.

Linda, EA

[Mo Sheets]

Similar Circumstances

My take on the scenario that was given by the IRS was that IN THE EVENT OF A DIVORCE, the spouse who remains in the home and continues ownership is responsible for repayment of the 2009/2010 FTHB credit only if they sell the home within the 36 month period.

In your client's case, as long as they continue to be married, if they (husband/wife) filed a joint return claiming the credit, they would be equally responsible in the event the house sells in 36 months from the date of closing.

I don't have any cite, but can't fathom the IRS going after someone who continues to be married but living apart from the spouse who remains in the home.

In the case of two people who were unmarried and purchased a home utilizing the FTHB credit, they could each claim 1/2 or one could claim the total credit. I think the principle would remain the same here.

Just my opinion.....for what it is worth. I would be interested in seeing what others have to say.

Mo

[Jesse]

In my opinion I agree with Mo Sheets, the repayment would continue to follow the house, and since Spouse A is still using the home as a primary residence she will be responsible for the repayment.