First Time Home Owners Credit

[BillV]

My client was a renter until 2008. In 2001 her mother willed the mother's home to her children reserving a life estate interest, however, she is still living. All the children agreed to my client receiving the home upon the mother's death, so, my client paid a proportionate amoutn to each of her siblings, then, her mother gifted the home to my client. My client also owns a piece of property adjacent to her mother's home and this property has a structure on it which is unliveable.

In 2008 my client bought a home on her own and received the first time homeowners credit. Now the IRS says no. Please comment. Thanks!

[JohnH]

Just a quick off-the-tp-of-my-head answer. It may be that your client had been deducting property taxes on the adjacent property in prior years. If so, IRS computers flagged the return as possibly not being entitled to the FTHB credit.

Without commenting on whether the client was eligible for the FTHB credit, I suggest you look at this as a possible reason for the rejection. I had one like this myself, and it took three letters and several copies of tax bills, rent bills, and drivers license copies to establish that the client really was a FTHB, in spite of the tax deductions taken in prior years for property taxes on a property which was not their home. I think it took us about 4 months to get it all straightened out. Be sure to use Certified Mail with returned receipt for all correspondence.