70 thoughts on “First Time Buyer Housing Tax Credit Loophole?”
“It certainly seems to go against the spirit of the tax credit which was put into place to help those who are first time home buyers….”
It was put into place to revive the housing market. Helping first-time homebuyers is incidental.
Rather than put up barricades to make it difficult for homebuyers to use this credit, they’ve opted to make the definition of First Time Home Buyer fluid and liberal.
This helps a larger number of people to take advantage of this credit, hence helps the housing market to rebound, and along with that provides jobs to home builders, furniture manufacturers, lawn-mower makers, houseware and kitchen item sellers, carpet-layers, paint stores, etc., everyone and anyone who stands to make a little dough from the new homeowner.
“It certainly seems to go against the spirit of the tax credit which was put into place to help those who are first time home buyers….”
It was put into place to revive the housing market. Helping first-time homebuyers is incidental.
Rather than put up barricades to make it difficult for homebuyers to use this credit, they’ve opted to make the definition of First Time Home Buyer fluid and liberal.
This helps a larger number of people to take advantage of this credit, hence helps the housing market to rebound, and along with that provides jobs to home builders, furniture manufacturers, lawn-mower makers, houseware and kitchen item sellers, carpet-layers, paint stores, etc., everyone and anyone who stands to make a little dough from the new homeowner.
Hi Marlow – I completely agree with you on stimulating the economy with this and I think it should go a step further and be bigger and broader, but calling it what it is would be more straightforward in my mind. How are you going to let others who qualify know about it if you just call it a first time home buyer credit?
Hey Aubrey – True in regards to the three year portion and it should be their principal residence, but a lot of the main stream public is unaware of the broader definition of a first time home buyer. The credit was put into place to encourage new home buyers and calling it a first time home buyer credit when it includes other exceptions might seem to exclude someone who actually qualifies. I guess I shouldn’t be surprised – since when has tax lingo been clear anyway:)
I think part of improving the housing market is encouraging low inventory. If the credit were available to people who currently own homes, it might encourage more people to put their homes on market, which would make matters worse than they are. So anyone who doesn’t currently own a home, and hasn’t for at least three years, is the target audience.
I think part of improving the housing market is encouraging low inventory. If the credit were available to people who currently own homes, it might encourage more people to put their homes on market, which would make matters worse than they are. So anyone who doesn’t currently own a home, and hasn’t for at least three years, is the target audience.
OH! You’re my new favorite blogger fyi
Sorry, I just realized you were looking for examples of a person who owns property and not a principal residence. I know many.
1) Client has rented their principal residence for over 10 years and has never owned a home. Client invests their monies in stocks, bonds and real estate. They own investment property, but not a home. That they have investments of property is not relevant. (see end to see why they do not qualify)
2) Client’s source of income is rental property. Owns many rental properties. His “work” is rental property and the income from the rental property is the source of funds to buy his first home. He has done this since he was 18 as his “work” is owning muli-famiy units. He is getting married now at age 33 and is buying “his first home”.
3) Young man, never owned a home, owns a little condo up in Snoqualmie that he uses when he goes up there to ski in the winter. Sold his residence condo 3 years ago and has been renting close to work ever since that time. He is now ready to “get back in” and buy a residence to replace the condo he sold over 3 years ago. He is a perfect example of the target audience for this credit. Someone who once owned a home, sold it, and rented waiting for “the right time to buy”. The fact that he owns a little condo to use when he goes skiing is irrelevant.
4) Client owns a bed and breakfast. It is their source of income. They now have enough income to buy their first home.
In the first example, the client earns too much to qualify for the credit. So the test is, if someone is too “wealthy” for the credit and owns property that is not their principal residence, they will be disqualified on the income cap, not the “do you own other property that is not your principal residence?” question.
For people whose income source is derived in whole or in part from property, disqualifying them because their livlihood involves owning property, is not appropriate.
Sorry, I just realized you were looking for examples of a person who owns property and not a principal residence. I know many.
1) Client has rented their principal residence for over 10 years and has never owned a home. Client invests their monies in stocks, bonds and real estate. They own investment property, but not a home. That they have investments of property is not relevant. (see end to see why they do not qualify)
2) Client’s source of income is rental property. Owns many rental properties. His “work” is rental property and the income from the rental property is the source of funds to buy his first home. He has done this since he was 18 as his “work” is owning muli-famiy units. He is getting married now at age 33 and is buying “his first home”.
3) Young man, never owned a home, owns a little condo up in Snoqualmie that he uses when he goes up there to ski in the winter. Sold his residence condo 3 years ago and has been renting close to work ever since that time. He is now ready to “get back in” and buy a residence to replace the condo he sold over 3 years ago. He is a perfect example of the target audience for this credit. Someone who once owned a home, sold it, and rented waiting for “the right time to buy”. The fact that he owns a little condo to use when he goes skiing is irrelevant.
4) Client owns a bed and breakfast. It is their source of income. They now have enough income to buy their first home.
In the first example, the client earns too much to qualify for the credit. So the test is, if someone is too “wealthy” for the credit and owns property that is not their principal residence, they will be disqualified on the income cap, not the “do you own other property that is not your principal residence?” question.
For people whose income source is derived in whole or in part from property, disqualifying them because their livlihood involves owning property, is not appropriate.
Buyer is currently a non-occupying co-borrower/owner of a home (to help the occupying borrower, a family member, qualify for the loan). He does not live there.
He qualifies as a first time buyer, since it is not his principle residence.
Thanks you guys for all the great examples. I am still amazed, though, at how many buyers do not know that they qualify. They hear the term “first-time home buyer” and dismiss themselves as possibly being included.
I have a unique situation. I owned a house in LA which I had used as a primary residence. I moved to Dallas in July 2006 for a new job, but could not sell the house in LA.
Does the 3 year waiting period begin when I moved out (July ’06)? Or when I finally sold it (February ’07)?
Also, I bought a house in Dallas in December ’06, planning on living in it. But because of the situation with the house in LA, I decided it would be imprudent to have 2 mortgages. So I sold the house in Dallas in April ’07, never having lived in it. I ass-u-me this doesn’t count against me, but would love to hear your take.
Tom – you DO have a unique situation. First off: get a tax attorney to tell you because although I do have a background in accounting, I am in no way qualified to give you tax advice – especially given how fast it changes!!! 🙂
That being said, if it were me, I would also assume that the second purchase might not count against me if I truly never lived in it. (did it just sit vacant for a few months or what happened there?) I would also think it would be reasonable to consider the date that the residence stopped being your principal residence as the date you moved out, but if you go to buy now, I would strongly encourage you to get a tax attorney or accountant to help you sort it out because claiming the $8k is going to throw up some red flags most likely and you want to have a qualified professional in your corner if/when it happens.
Tom – you DO have a unique situation. First off: get a tax attorney to tell you because although I do have a background in accounting, I am in no way qualified to give you tax advice – especially given how fast it changes!!! 🙂
That being said, if it were me, I would also assume that the second purchase might not count against me if I truly never lived in it. (did it just sit vacant for a few months or what happened there?) I would also think it would be reasonable to consider the date that the residence stopped being your principal residence as the date you moved out, but if you go to buy now, I would strongly encourage you to get a tax attorney or accountant to help you sort it out because claiming the $8k is going to throw up some red flags most likely and you want to have a qualified professional in your corner if/when it happens.
Yes, the second house sat vacant. So I assume the same as you.
But that’s good advice to get a tax attorney. Only question is, will that cost more than the 8K credit is worth? Also, how does one find a qualified tax attorney?
A qualified tax attorney is a good place to start; but why not look for a good CPA, EA, or Paid Tax Preparer who is registered with the IRS?
The tax attorney, CPA, and EA can all represent you in front of the IRS if you get audited and are required to appear in front of them.
Everyone I listed above can assist you with answering your questions. Over the most two recent tax years I managed a tax office and I supervised over 1400 tax returns.
Also, the only difference between a CPA and a EA is a college-degree. Both have passed licensure exams and take continuing education classes.
My spouse and I want to buy a house jointly with our son. My spouse and I do not qualify as 1st time buyers, but our son does. From what I’ve read I believe our son would qualify for the $8,000 tax credit, as the home will be his residence and he is a 1st time buyer. Do you agree with my
thinking?
I am wondering if there will be any loop holes or extensions made for anyone not making the 3 year new home buyer time frame. I was divorced and renting for the past 2 years, I am now buying a home as an individual. seems a little unfair that I should get no credits for deciding to buy now. I know they can’t make consessions for every circumstance but by the 2 years it is evident that I did not run out to list my house to buy a new one.
I have a question about this as well, if anyone wants to chime in. I noticed that buying a home from a close relative does not count towards this tax credit, meaning, if I were to buy a house from my parents, as a normally qualified first time home buyer, I could not claim this credit. With that in mind, what if the home I had sold two years ago, that we lived in, was bought from my wife’s parents, given the fact that it does not count as a “home purchase” under the spirit of this credit, how can they count it against me as a home purchase in the past? Is this a loophole I might be able to get under?
They are trying to prevent people from pretending to buy and sell between family members to grab some free money, so no, I don’t think there’s a correlation.
Hi…….My husband and I purchased my house from my parents and this was NO PRETEND…I do not understand why we do not qualify as First Time Home Owner. The purchase was completely legal in every aspect. Here you have the Government basically giving away money to people that have rental properties (probably do not need the incentive) and now have the excuse that they JUST bought there First HOME, and my husband and I are exclude. It’s frustrating.
My son would be taking the complete interest deduction and the property tax deduction on his return. Therefore, I believe qualifies for the federal $8K credit and I also believe he qualifies for the California $10K credit. I am just looking a second opinion because my wife and I would be joint owners and consigners. What I’ve read doesn’t give any good examples or similarities when both parents are involved with the child’s purchase
why don’t you make your son learn some financial responsibility and buy his own home when he is ready. it will be better for him in the long run than mom and dad buying it and trying to show him how to game the system.
So you believe it is financially irresponsible to buy a home if you have to get a loan or a co-signer? That makes no sense at all. Almost all homebuyers get a loan from somewhere. Getting it from parents doesn’t make it a different ballgame. In fact, it is smart use of money. If the parents have the money to make the loan, at a reasonable interest rate to their child, everyone wins. The child gets a good rate and the parents have a sound investment. On the other issues, many banks require co-signers for borrowers of a certain age regardless of their financial situation. My son was debt free, had a good job, a car (paid for), a 20% down payment, and a roth IRA with a few thousand dollars in it — all without blemishes on his credit report and all from working his tail off throughout high school and college. Regardless, during the credit crunch, at age 23 he could not find a local bank that would loan him the money without a co-signature. Honestly, people who pop off ignorant remarks are working from a limited view that smacks of jealousy and frustration at their own situations and isn’t helpful to people who are here to share in a HELPFUL exchange of information. Perhaps you should join a frustration management blog instead.
For the ‘relative’ problem, my ‘stepson’ (of 23years) qualifies as being eligible for the credit but my ‘blood’ son (27years old) does not !! Can Someone please explain this illogic to us ? There has to be a creative way to address this discrepancy. Please help.
Very interesting. My husband and I thought that we were disqualified because we own trailer from 1976 that cost 5k. However since we are in a trailer park and not on a solid foundation, do you think we qualify?
Very interesting. My husband and I thought that we were disqualified because we own trailer from 1976 that cost 5k. However since we are in a trailer park and not on a solid foundation, do you think we qualify?
Hi Amy, while HUD’s definition would make it seem like you do qualify, I would check with your tax accountant to be sure before you do anything because the IRS defines the main home and might exclude you. I think there are so many little loopholes in this that it is best to get a professional tax person to really help out.
2nd try, any help please. For the ‘relative’ problem, my ’stepson’ (of 23years) qualifies as being eligible for the credit but my ‘blood’ son (27years old) does not !! Can Someone please explain this illogic to us ? There has to be a creative way to address this discrepancy. Please help.
Why would you dispute this? Your son obviously doesn’t qualify as he is a “family member”. Are you hoping to disqualify your stepson as well? What is your goal?
I am wondering if I meet all the other requirements, will I be able to purchase a duplex – live for 3 years on the one half and rent out the other side – and qualify for the tax credit?
It really doesn’t make sense if a vacation home does not disqualify, but a mobile home owner cannot qualify even though his house is depreciating in value and the vacation home would appreciate. That lets us out since we also bought the land under the home in 2008. We are interested now in building on our new land and would not qualify for the credit. That stinks, especially since someone that does not pay taxes could get a check back from the IRS for the full 8,000 if they bought a home.
If I were to buy a home from my husband’s grandmother (who has a different last name, obviously) would the IRS care? Technically I suppose we are legally related somehow, but not what I would call a close relative at all. What do you guys think?
Family and related parties are defined in the law. Ancestors are included, so your husband’s relationship to his grandmother would disqualify any purchase that he is involved in.
I have a interesting one that I was wondering if anyone could see. I have a client that is looking to purchase a home. She has never owned but her fiancee has. He owns a condo with another that he hasn’t lived in for a year. The house their interested in may require both to be on the loan. Is there anyway they can still qualify for the tax credit with the both being on the loan? Or would it only be true with her soly? Thanks!
Is this a loophole? My partner and I (both first time home buyers) will be closing on a home in a few weeks. Because we have to file separately for federal taxes (as our marriage is only legal in MA), will we each be elligible for the $8000 tax refund (thus totaling $16,000) on the same home?
I am trying to figure out if we qualify…
We are in the process of buying a house (my first).
My wife co-owns (with her parents) the duplex that we are living in right now.
However, her name is on the deed, but she claims absolutely no tax benefit from the property.
Her parents write off the interest, as well as any ‘improvements’ that are done to the place. Does this tax trail (her parents claim entirely) allow us to fall through the loophole? It seems to me,that there are two approaches: 1) What if we claim the credit and disclose all of this information and let them decide if it appropriate? or, 2) Since she has never claimed anything on taxes, then it would not show up in an audit situation anyway (I assume an audit is highly likely)… Really what would happen?
I am trying to figure out if we qualify…
We are in the process of buying a house (my first).
My wife co-owns (with her parents) the duplex that we are living in right now.
However, her name is on the deed, but she claims absolutely no tax benefit from the property.
Her parents write off the interest, as well as any ‘improvements’ that are done to the place. Does this tax trail (her parents claim entirely) allow us to fall through the loophole? It seems to me,that there are two approaches: 1) What if we claim the credit and disclose all of this information and let them decide if it appropriate? or, 2) Since she has never claimed anything on taxes, then it would not show up in an audit situation anyway (I assume an audit is highly likely)… Really what would happen?
I am trying to figure out if I can qualify….My brother and I inherited a house from our father when he passed away. I have lived in the home during the past 3 years, but I have never before “purchased” a home until this year. Will I be denied the credit?
Great question – I’m stumped on this myself…I signed over ownership of a home I owned in a previous marriage in June of 2006. I remarried in April of 2008…and then my wife who is a first time homeowner bought a home in Feb of 2009 – my name is no where on the paperwork and the home is completely in her name…so technically I’d probably have a tough time claiming ownership of this home as it is – I can’t even get info from the mortgage company until we add my name!!
If the definition of first time home owner hinges on the definition of the Main Residence here, “the residence I’ve lived in the most” – I haven’t had one that’s qualified as a home since June of 2006…since then I’ve been renting. We bought this home because the realtor we used sold us on the deal with this tax credit in mind. So as I ready our tax info for this year, I’m just learning about the fact that we may not qualify now…so we’re really unhappy at this point until we can find out more…
I came across this site when googling a question about the First Time Home Buyers Credit. Wondering if maybe you had some insight on my situation. My grandmother has Alzheimers, we recently put her in a home, my Aunt became her Trust. My husband and I wanted to buy her house. My credit is no good so my Husband purchased the house with my father. I am not on the deed or mortgage. It is my husband and my father. We just used my dad for his credit basically. Anyway, with that said. My father does not want to claim the credit, he wanted us to. Can my husband claim the tax credit even though it was my grandmothers house considering that i am not actually a buyer of the house. We were never told it was going to be an issue. I would like to think that because Im not on the house that it is possible but what do I know?? Thank you!
OK, so if you have a REAL and LEGAL purchase through a bank loan, how is it logical and fair to deny you tax credit if it was purchased from family?! I understand if it was all “under the table” but seriously, a legal bank transfer? That is just ridiculous! Just another way to make sure the gov can same more money!
I agree! I’m in the same boat as you. What makes me sooooo angry is that no one from the mortgage people to the title office…nobody told us about this. Its sneaky and deceptive. I bought my house fair and square and I feel COMPLETELY ripped off!! I was going to use this money to purchase new windows and updates for the house. Is there anything I can do, or someone I can talk to? This just isnt fair (and dont tell me thats life or I’ll start throwing shoes j/k)
I sold a home (Property A) that I owned with my ex-wife on Jan. 31 2007. However, I stopped living in Property A on Apr. 1 2006. In other words, Property A was no longer my main home as of Apr. 1 2006 when I moved myself and my belongings to a temporary rental situation. At no time during the period from April 1 2006 to Jan. 31 2007, was Property A my “main home”. During that time, I lived at two temporary shared rental locations: X from April 1, 2006 to August 1, 2006 and Y from August 1, 2006 to Feb. 1, 2007. I purchased a new home (Property B) with my current wife (a 1st-time home buyer) on May 28, 2009. I should qualify for the $8,000 tax credit because neither myself nor my current wife owned a “main home” during the 3-year period prior to purchasing our home (Property B) on May 28, 2009?
If I am audited, what type of documentation will I need to supply to show that, although I did not sell Property A until Jan. 31 2009, it stopped being my “main home” on April 1, 2006. The documents that I currently have are the following: 1)When I renewed my state driver’s license on my birthday in October 2006, it lists Y as my address. 2) A bank statement I found in my records from August 2006 lists Y as my address. 3) A credit card statement from April 2006 shows my address at X. 4) I have a copy of a rental agreement showing that I began renting X on Apr. 1 2006. and 5) I have a copy of a rental agreement for Y showing that I began renting Y on August 1, 2006.
So, I purchase a home, get 1st time home buyer tax credit. Two years later, I lose my job and was unemployed for 4 months! Yikes! Now I am working temp-to-hire @ half the salary I was making. I HAVE to sell my house….I am going through all my savings and then some.
What is going to happen? Do I have to lose money on the sale (after I used the tax credit to remodel the kitchen and repaint entire inside of home)?
Am I going to be forced to pay back the $7500 to the IRS now? I’m not sure what my options are at this point.
Thank you
It is likely that at the time you purchased the home, it was the first tax credit which was a 15 year interest free loan. As far as I know, everyone had to pay that credit back over a 15 year period at $500 a year, whether they kept the home or not. But check with a tax accountant as it depends on the actual date of purchase.
The original credit that was passed under the Bush Administration was a loan.
It is likely that at the time you purchased the home, it was the first tax credit which was a 15 year interest free loan. As far as I know, everyone had to pay that credit back over a 15 year period at $500 a year, whether they kept the home or not. But check with a tax accountant as it depends on the actual date of purchase.
The original credit that was passed under the Bush Administration was a loan.
Ok, first time home buyer… Prob is, I bought it from family… Now I know I dint qualify for the 8k credit… But, never have done my own taxes…, am I able to claim ANYTHING on my home? After I told my tax preparer it was thru family she just dropped the whole house issue completely… I didn’t itemize anything on my taxes… But do I claim any part of it or do you do your taxes as if there wasn’t even a house or did she screw up and over looked my house..? I find it hard to believe that there isn’t anything I can claim on my house…?
HI EM – I missed the last one – sorry:) I think I agree with your tax preparer on it – the family connection seems to be a killer according to any tax person I have talked to…. In the future if you itemize, the interest on the house might be a good thing, though, as you can write that off…
My sister and my brother-in-law recently closed on their new first time home that they decide to construct.. They meet all the criteria for the first time home owner’s credit but received a letter in the mail form the IRS denying their request for the. All the letter mentioned was something in regards about the interest they had paid in the last three months of 2008 on the mortgage they received for the construction of the home. As law abiding citizens like all of us, we have to pay interest on these loans, but doing so unknowingly created a loophole that ultimately lead to their denial. Basically the IRS is saying that since they were paying for interest on mortgage loan in 2008 for a house that was being built ( and not ultimately moved into until august 2009) that they technically already had a house prior to 2009 therefore leading to their denial. It is a horrible loophole in this system and I hope not many other people are lead through this one! They are still struggling to fight this denial and trying to find how that can get information on trying to appeal the decision but the incompetent people working for the IRS don’t seem to know what they are doing…
Here is the situation. My sister bought my grandmother’s house. It was in a trust for years as my grandmother is in a nursing home. My sister paid fair market value for the home (2 appraisals). She has been told that she does not qualify for the credit. I argue that it was purchased from a “trust”, not a family member. Yes the trust (and proceeds of the sale) are for the benefit of my grandmother. Doesn’t seem fair as she paid what anyone else off the street would have paid—and rec’d the credit for! Lost cause? The purchase was in April 2009…prior to the new form 5405.
I recently bought a house from my parents, I know that means I do not qualify for the first time homebuyer tax credit, but that doesn’t seem fair. Me and my husband do not make that much and we have a baby on the way and the credit would really help us out. Does anyone know of anyway that still allow you to have the tax credit?
My wife and I purchased our house from my mother. We paid Fair Market value for the residence, no substantial discount and we are are not trying to scam the government. We believe we should be entitled to the Housing Tax credit. The purchase is exactly the same as if we purchased from a stranger. It is the Senate and House of Representatives that can change this IRS Code. We encourage anyone in this same situation to contact their Senator and Congressman and make them aware of this inequity. Wife and I are calling and writing our representatives, the more people that do the same the more chance the government will fix this inequity.
I was married for 29 years. When I filed for divorce, I bought a house, assuming I would qualify for this tax credit. My name was never on the home with my ex, he inheirited it from his mother. My name was not on anything during the marriage. Now, the IRS is disallowing the tax credit. This seems so unfair to me. Starting out with a new life, new debts, I was counting on this money. Any loopholes for someone like me?
What happened to the house you lived in? Was it sold? Did you get any money from the sale of that house? Does your ex-husband still live there?
Seems it would be considered community property and you would legally own half of it regardless of the owner on title? Usually it can’t be sold without your signature at closing.
My ex still lives in the house. When we went to court, the judge said in Colorado, inheiritance is not community property. In the divorce settlement, I did not receive anything from the house. I purchased the house I am living in on June 5th, 2009, and my divorce was final April, 2010. I bought this house, and applied for the tax credit in good faith. The realator and my CPA both believed I qualified for the tax credit. There was a second mortgage on the house my ex took out in 2007, my name was not on that. Thank you for any advice.
Your CPA can fight the IRS’s disallowance of your credit. It will be tough, but it can be done through ‘tax court’. Also, it might get above the CPA’s head (so to speak) and it might requires the hiring of a Tax Attorney.
I have had some of these instances come through the tax office I manage.
Even if you lived in an old trailer with the wheels and hitch still on it, the buy a real house you get screwed. The IRS will get everyone’s hopes up by making these tax breaks sound like a good thing for the public but then find a myriad of ways to deny you. It’s what they do. They are trained and paid to find the smallest reason to deny you and you have no recourse.
Why bother?
I refinanced in my name my parents house in 2004 so they would not lose it, I never lived in the house. In 2007 i bought my 1st first and was told I could claim the 1st time credit ($7500). I just got a letter from the IRS that I was denied 🙁 because they show taxes were paid on my “parents” home in 2005. Dont know what to do, I never lived there and mu LO told me I would get the tax credit. any help would be appriciated.
“It certainly seems to go against the spirit of the tax credit which was put into place to help those who are first time home buyers….”
It was put into place to revive the housing market. Helping first-time homebuyers is incidental.
Rather than put up barricades to make it difficult for homebuyers to use this credit, they’ve opted to make the definition of First Time Home Buyer fluid and liberal.
This helps a larger number of people to take advantage of this credit, hence helps the housing market to rebound, and along with that provides jobs to home builders, furniture manufacturers, lawn-mower makers, houseware and kitchen item sellers, carpet-layers, paint stores, etc., everyone and anyone who stands to make a little dough from the new homeowner.
“It certainly seems to go against the spirit of the tax credit which was put into place to help those who are first time home buyers….”
It was put into place to revive the housing market. Helping first-time homebuyers is incidental.
Rather than put up barricades to make it difficult for homebuyers to use this credit, they’ve opted to make the definition of First Time Home Buyer fluid and liberal.
This helps a larger number of people to take advantage of this credit, hence helps the housing market to rebound, and along with that provides jobs to home builders, furniture manufacturers, lawn-mower makers, houseware and kitchen item sellers, carpet-layers, paint stores, etc., everyone and anyone who stands to make a little dough from the new homeowner.
I’m pretty sure this is the standard definition used for most first-time buyer programs.
Hi Marlow – I completely agree with you on stimulating the economy with this and I think it should go a step further and be bigger and broader, but calling it what it is would be more straightforward in my mind. How are you going to let others who qualify know about it if you just call it a first time home buyer credit?
Hey Aubrey – True in regards to the three year portion and it should be their principal residence, but a lot of the main stream public is unaware of the broader definition of a first time home buyer. The credit was put into place to encourage new home buyers and calling it a first time home buyer credit when it includes other exceptions might seem to exclude someone who actually qualifies. I guess I shouldn’t be surprised – since when has tax lingo been clear anyway:)
Here is HUD’s definition (similar):
http://www.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm
people still believe this is going to revive the housing market enough to stimulate the economy? amazing.
Courtney,
I think part of improving the housing market is encouraging low inventory. If the credit were available to people who currently own homes, it might encourage more people to put their homes on market, which would make matters worse than they are. So anyone who doesn’t currently own a home, and hasn’t for at least three years, is the target audience.
Courtney,
I think part of improving the housing market is encouraging low inventory. If the credit were available to people who currently own homes, it might encourage more people to put their homes on market, which would make matters worse than they are. So anyone who doesn’t currently own a home, and hasn’t for at least three years, is the target audience.
OH! You’re my new favorite blogger fyi
Hi Courtney,
Sorry, I just realized you were looking for examples of a person who owns property and not a principal residence. I know many.
1) Client has rented their principal residence for over 10 years and has never owned a home. Client invests their monies in stocks, bonds and real estate. They own investment property, but not a home. That they have investments of property is not relevant. (see end to see why they do not qualify)
2) Client’s source of income is rental property. Owns many rental properties. His “work” is rental property and the income from the rental property is the source of funds to buy his first home. He has done this since he was 18 as his “work” is owning muli-famiy units. He is getting married now at age 33 and is buying “his first home”.
3) Young man, never owned a home, owns a little condo up in Snoqualmie that he uses when he goes up there to ski in the winter. Sold his residence condo 3 years ago and has been renting close to work ever since that time. He is now ready to “get back in” and buy a residence to replace the condo he sold over 3 years ago. He is a perfect example of the target audience for this credit. Someone who once owned a home, sold it, and rented waiting for “the right time to buy”. The fact that he owns a little condo to use when he goes skiing is irrelevant.
4) Client owns a bed and breakfast. It is their source of income. They now have enough income to buy their first home.
In the first example, the client earns too much to qualify for the credit. So the test is, if someone is too “wealthy” for the credit and owns property that is not their principal residence, they will be disqualified on the income cap, not the “do you own other property that is not your principal residence?” question.
For people whose income source is derived in whole or in part from property, disqualifying them because their livlihood involves owning property, is not appropriate.
Hi Courtney,
Sorry, I just realized you were looking for examples of a person who owns property and not a principal residence. I know many.
1) Client has rented their principal residence for over 10 years and has never owned a home. Client invests their monies in stocks, bonds and real estate. They own investment property, but not a home. That they have investments of property is not relevant. (see end to see why they do not qualify)
2) Client’s source of income is rental property. Owns many rental properties. His “work” is rental property and the income from the rental property is the source of funds to buy his first home. He has done this since he was 18 as his “work” is owning muli-famiy units. He is getting married now at age 33 and is buying “his first home”.
3) Young man, never owned a home, owns a little condo up in Snoqualmie that he uses when he goes up there to ski in the winter. Sold his residence condo 3 years ago and has been renting close to work ever since that time. He is now ready to “get back in” and buy a residence to replace the condo he sold over 3 years ago. He is a perfect example of the target audience for this credit. Someone who once owned a home, sold it, and rented waiting for “the right time to buy”. The fact that he owns a little condo to use when he goes skiing is irrelevant.
4) Client owns a bed and breakfast. It is their source of income. They now have enough income to buy their first home.
In the first example, the client earns too much to qualify for the credit. So the test is, if someone is too “wealthy” for the credit and owns property that is not their principal residence, they will be disqualified on the income cap, not the “do you own other property that is not your principal residence?” question.
For people whose income source is derived in whole or in part from property, disqualifying them because their livlihood involves owning property, is not appropriate.
Wooohoo! I qualify! My mortgage buddy has been receiving calls all over the place for refinances because of this new rule.
Here’s another example.
Buyer is currently a non-occupying co-borrower/owner of a home (to help the occupying borrower, a family member, qualify for the loan). He does not live there.
He qualifies as a first time buyer, since it is not his principle residence.
Thanks you guys for all the great examples. I am still amazed, though, at how many buyers do not know that they qualify. They hear the term “first-time home buyer” and dismiss themselves as possibly being included.
Courtney,
I have a unique situation. I owned a house in LA which I had used as a primary residence. I moved to Dallas in July 2006 for a new job, but could not sell the house in LA.
Does the 3 year waiting period begin when I moved out (July ’06)? Or when I finally sold it (February ’07)?
Also, I bought a house in Dallas in December ’06, planning on living in it. But because of the situation with the house in LA, I decided it would be imprudent to have 2 mortgages. So I sold the house in Dallas in April ’07, never having lived in it. I ass-u-me this doesn’t count against me, but would love to hear your take.
Tom – you DO have a unique situation. First off: get a tax attorney to tell you because although I do have a background in accounting, I am in no way qualified to give you tax advice – especially given how fast it changes!!! 🙂
That being said, if it were me, I would also assume that the second purchase might not count against me if I truly never lived in it. (did it just sit vacant for a few months or what happened there?) I would also think it would be reasonable to consider the date that the residence stopped being your principal residence as the date you moved out, but if you go to buy now, I would strongly encourage you to get a tax attorney or accountant to help you sort it out because claiming the $8k is going to throw up some red flags most likely and you want to have a qualified professional in your corner if/when it happens.
Tom – you DO have a unique situation. First off: get a tax attorney to tell you because although I do have a background in accounting, I am in no way qualified to give you tax advice – especially given how fast it changes!!! 🙂
That being said, if it were me, I would also assume that the second purchase might not count against me if I truly never lived in it. (did it just sit vacant for a few months or what happened there?) I would also think it would be reasonable to consider the date that the residence stopped being your principal residence as the date you moved out, but if you go to buy now, I would strongly encourage you to get a tax attorney or accountant to help you sort it out because claiming the $8k is going to throw up some red flags most likely and you want to have a qualified professional in your corner if/when it happens.
Thanks for the sage advice Courtney.
Yes, the second house sat vacant. So I assume the same as you.
But that’s good advice to get a tax attorney. Only question is, will that cost more than the 8K credit is worth? Also, how does one find a qualified tax attorney?
A qualified tax attorney is a good place to start; but why not look for a good CPA, EA, or Paid Tax Preparer who is registered with the IRS?
The tax attorney, CPA, and EA can all represent you in front of the IRS if you get audited and are required to appear in front of them.
Everyone I listed above can assist you with answering your questions. Over the most two recent tax years I managed a tax office and I supervised over 1400 tax returns.
Also, the only difference between a CPA and a EA is a college-degree. Both have passed licensure exams and take continuing education classes.
http://FinanceDiva.com
My spouse and I want to buy a house jointly with our son. My spouse and I do not qualify as 1st time buyers, but our son does. From what I’ve read I believe our son would qualify for the $8,000 tax credit, as the home will be his residence and he is a 1st time buyer. Do you agree with my
thinking?
I am wondering if there will be any loop holes or extensions made for anyone not making the 3 year new home buyer time frame. I was divorced and renting for the past 2 years, I am now buying a home as an individual. seems a little unfair that I should get no credits for deciding to buy now. I know they can’t make consessions for every circumstance but by the 2 years it is evident that I did not run out to list my house to buy a new one.
I am in the same situation… have you found any way to qualify?
I have a question about this as well, if anyone wants to chime in. I noticed that buying a home from a close relative does not count towards this tax credit, meaning, if I were to buy a house from my parents, as a normally qualified first time home buyer, I could not claim this credit. With that in mind, what if the home I had sold two years ago, that we lived in, was bought from my wife’s parents, given the fact that it does not count as a “home purchase” under the spirit of this credit, how can they count it against me as a home purchase in the past? Is this a loophole I might be able to get under?
Andrew,
They are trying to prevent people from pretending to buy and sell between family members to grab some free money, so no, I don’t think there’s a correlation.
Hi…….My husband and I purchased my house from my parents and this was NO PRETEND…I do not understand why we do not qualify as First Time Home Owner. The purchase was completely legal in every aspect. Here you have the Government basically giving away money to people that have rental properties (probably do not need the incentive) and now have the excuse that they JUST bought there First HOME, and my husband and I are exclude. It’s frustrating.
#16,
Check the math and rules for doing a lease purchase and closing when you hit the 3 year mark.
clay,
Who is going to be taking the interest deduction on their future returns? You or your son?
My son would be taking the complete interest deduction and the property tax deduction on his return. Therefore, I believe qualifies for the federal $8K credit and I also believe he qualifies for the California $10K credit. I am just looking a second opinion because my wife and I would be joint owners and consigners. What I’ve read doesn’t give any good examples or similarities when both parents are involved with the child’s purchase
clay –
why don’t you make your son learn some financial responsibility and buy his own home when he is ready. it will be better for him in the long run than mom and dad buying it and trying to show him how to game the system.
So you believe it is financially irresponsible to buy a home if you have to get a loan or a co-signer? That makes no sense at all. Almost all homebuyers get a loan from somewhere. Getting it from parents doesn’t make it a different ballgame. In fact, it is smart use of money. If the parents have the money to make the loan, at a reasonable interest rate to their child, everyone wins. The child gets a good rate and the parents have a sound investment. On the other issues, many banks require co-signers for borrowers of a certain age regardless of their financial situation. My son was debt free, had a good job, a car (paid for), a 20% down payment, and a roth IRA with a few thousand dollars in it — all without blemishes on his credit report and all from working his tail off throughout high school and college. Regardless, during the credit crunch, at age 23 he could not find a local bank that would loan him the money without a co-signature. Honestly, people who pop off ignorant remarks are working from a limited view that smacks of jealousy and frustration at their own situations and isn’t helpful to people who are here to share in a HELPFUL exchange of information. Perhaps you should join a frustration management blog instead.
For the ‘relative’ problem, my ‘stepson’ (of 23years) qualifies as being eligible for the credit but my ‘blood’ son (27years old) does not !! Can Someone please explain this illogic to us ? There has to be a creative way to address this discrepancy. Please help.
Very interesting. My husband and I thought that we were disqualified because we own trailer from 1976 that cost 5k. However since we are in a trailer park and not on a solid foundation, do you think we qualify?
I am going on this by the info referenced on Huds website:
http://www.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm
Very interesting. My husband and I thought that we were disqualified because we own trailer from 1976 that cost 5k. However since we are in a trailer park and not on a solid foundation, do you think we qualify?
I am going on this by the info referenced on Huds website:
http://www.hud.gov/offices/hsg/sfh/ref/sfhp3-02.cfm
Hi Amy, while HUD’s definition would make it seem like you do qualify, I would check with your tax accountant to be sure before you do anything because the IRS defines the main home and might exclude you. I think there are so many little loopholes in this that it is best to get a professional tax person to really help out.
2nd try, any help please. For the ‘relative’ problem, my ’stepson’ (of 23years) qualifies as being eligible for the credit but my ‘blood’ son (27years old) does not !! Can Someone please explain this illogic to us ? There has to be a creative way to address this discrepancy. Please help.
Sorry Relative – I just have no idea without getting all the details and even then I wouldn’t be qualified – I would suggest talking to a tax person.
Relative,
Why would you dispute this? Your son obviously doesn’t qualify as he is a “family member”. Are you hoping to disqualify your stepson as well? What is your goal?
I am wondering if I meet all the other requirements, will I be able to purchase a duplex – live for 3 years on the one half and rent out the other side – and qualify for the tax credit?
It really doesn’t make sense if a vacation home does not disqualify, but a mobile home owner cannot qualify even though his house is depreciating in value and the vacation home would appreciate. That lets us out since we also bought the land under the home in 2008. We are interested now in building on our new land and would not qualify for the credit. That stinks, especially since someone that does not pay taxes could get a check back from the IRS for the full 8,000 if they bought a home.
If I were to buy a home from my husband’s grandmother (who has a different last name, obviously) would the IRS care? Technically I suppose we are legally related somehow, but not what I would call a close relative at all. What do you guys think?
Family and related parties are defined in the law. Ancestors are included, so your husband’s relationship to his grandmother would disqualify any purchase that he is involved in.
I have a interesting one that I was wondering if anyone could see. I have a client that is looking to purchase a home. She has never owned but her fiancee has. He owns a condo with another that he hasn’t lived in for a year. The house their interested in may require both to be on the loan. Is there anyway they can still qualify for the tax credit with the both being on the loan? Or would it only be true with her soly? Thanks!
I don’t think it matters who is on the loan. It matters who signs the purchase agreement and who owns the deed to the property.
Is this a loophole? My partner and I (both first time home buyers) will be closing on a home in a few weeks. Because we have to file separately for federal taxes (as our marriage is only legal in MA), will we each be elligible for the $8000 tax refund (thus totaling $16,000) on the same home?
I am trying to figure out if we qualify…
We are in the process of buying a house (my first).
My wife co-owns (with her parents) the duplex that we are living in right now.
However, her name is on the deed, but she claims absolutely no tax benefit from the property.
Her parents write off the interest, as well as any ‘improvements’ that are done to the place. Does this tax trail (her parents claim entirely) allow us to fall through the loophole? It seems to me,that there are two approaches: 1) What if we claim the credit and disclose all of this information and let them decide if it appropriate? or, 2) Since she has never claimed anything on taxes, then it would not show up in an audit situation anyway (I assume an audit is highly likely)… Really what would happen?
I am trying to figure out if we qualify…
We are in the process of buying a house (my first).
My wife co-owns (with her parents) the duplex that we are living in right now.
However, her name is on the deed, but she claims absolutely no tax benefit from the property.
Her parents write off the interest, as well as any ‘improvements’ that are done to the place. Does this tax trail (her parents claim entirely) allow us to fall through the loophole? It seems to me,that there are two approaches: 1) What if we claim the credit and disclose all of this information and let them decide if it appropriate? or, 2) Since she has never claimed anything on taxes, then it would not show up in an audit situation anyway (I assume an audit is highly likely)… Really what would happen?
I am trying to figure out if I can qualify….My brother and I inherited a house from our father when he passed away. I have lived in the home during the past 3 years, but I have never before “purchased” a home until this year. Will I be denied the credit?
Great question – I’m stumped on this myself…I signed over ownership of a home I owned in a previous marriage in June of 2006. I remarried in April of 2008…and then my wife who is a first time homeowner bought a home in Feb of 2009 – my name is no where on the paperwork and the home is completely in her name…so technically I’d probably have a tough time claiming ownership of this home as it is – I can’t even get info from the mortgage company until we add my name!!
If the definition of first time home owner hinges on the definition of the Main Residence here, “the residence I’ve lived in the most” – I haven’t had one that’s qualified as a home since June of 2006…since then I’ve been renting. We bought this home because the realtor we used sold us on the deal with this tax credit in mind. So as I ready our tax info for this year, I’m just learning about the fact that we may not qualify now…so we’re really unhappy at this point until we can find out more…
I came across this site when googling a question about the First Time Home Buyers Credit. Wondering if maybe you had some insight on my situation. My grandmother has Alzheimers, we recently put her in a home, my Aunt became her Trust. My husband and I wanted to buy her house. My credit is no good so my Husband purchased the house with my father. I am not on the deed or mortgage. It is my husband and my father. We just used my dad for his credit basically. Anyway, with that said. My father does not want to claim the credit, he wanted us to. Can my husband claim the tax credit even though it was my grandmothers house considering that i am not actually a buyer of the house. We were never told it was going to be an issue. I would like to think that because Im not on the house that it is possible but what do I know?? Thank you!
OK, so if you have a REAL and LEGAL purchase through a bank loan, how is it logical and fair to deny you tax credit if it was purchased from family?! I understand if it was all “under the table” but seriously, a legal bank transfer? That is just ridiculous! Just another way to make sure the gov can same more money!
I agree! I’m in the same boat as you. What makes me sooooo angry is that no one from the mortgage people to the title office…nobody told us about this. Its sneaky and deceptive. I bought my house fair and square and I feel COMPLETELY ripped off!! I was going to use this money to purchase new windows and updates for the house. Is there anything I can do, or someone I can talk to? This just isnt fair (and dont tell me thats life or I’ll start throwing shoes j/k)
I sold a home (Property A) that I owned with my ex-wife on Jan. 31 2007. However, I stopped living in Property A on Apr. 1 2006. In other words, Property A was no longer my main home as of Apr. 1 2006 when I moved myself and my belongings to a temporary rental situation. At no time during the period from April 1 2006 to Jan. 31 2007, was Property A my “main home”. During that time, I lived at two temporary shared rental locations: X from April 1, 2006 to August 1, 2006 and Y from August 1, 2006 to Feb. 1, 2007. I purchased a new home (Property B) with my current wife (a 1st-time home buyer) on May 28, 2009. I should qualify for the $8,000 tax credit because neither myself nor my current wife owned a “main home” during the 3-year period prior to purchasing our home (Property B) on May 28, 2009?
If I am audited, what type of documentation will I need to supply to show that, although I did not sell Property A until Jan. 31 2009, it stopped being my “main home” on April 1, 2006. The documents that I currently have are the following: 1)When I renewed my state driver’s license on my birthday in October 2006, it lists Y as my address. 2) A bank statement I found in my records from August 2006 lists Y as my address. 3) A credit card statement from April 2006 shows my address at X. 4) I have a copy of a rental agreement showing that I began renting X on Apr. 1 2006. and 5) I have a copy of a rental agreement for Y showing that I began renting Y on August 1, 2006.
Any thoughts on my situation?
So, I purchase a home, get 1st time home buyer tax credit. Two years later, I lose my job and was unemployed for 4 months! Yikes! Now I am working temp-to-hire @ half the salary I was making. I HAVE to sell my house….I am going through all my savings and then some.
What is going to happen? Do I have to lose money on the sale (after I used the tax credit to remodel the kitchen and repaint entire inside of home)?
Am I going to be forced to pay back the $7500 to the IRS now? I’m not sure what my options are at this point.
Thank you
Michele,
It is likely that at the time you purchased the home, it was the first tax credit which was a 15 year interest free loan. As far as I know, everyone had to pay that credit back over a 15 year period at $500 a year, whether they kept the home or not. But check with a tax accountant as it depends on the actual date of purchase.
The original credit that was passed under the Bush Administration was a loan.
Michele,
It is likely that at the time you purchased the home, it was the first tax credit which was a 15 year interest free loan. As far as I know, everyone had to pay that credit back over a 15 year period at $500 a year, whether they kept the home or not. But check with a tax accountant as it depends on the actual date of purchase.
The original credit that was passed under the Bush Administration was a loan.
Ok, first time home buyer… Prob is, I bought it from family… Now I know I dint qualify for the 8k credit… But, never have done my own taxes…, am I able to claim ANYTHING on my home? After I told my tax preparer it was thru family she just dropped the whole house issue completely… I didn’t itemize anything on my taxes… But do I claim any part of it or do you do your taxes as if there wasn’t even a house or did she screw up and over looked my house..? I find it hard to believe that there isn’t anything I can claim on my house…?
Is this thread not being answered anymore??? Posted a question with no reply….??
HI EM – I missed the last one – sorry:) I think I agree with your tax preparer on it – the family connection seems to be a killer according to any tax person I have talked to…. In the future if you itemize, the interest on the house might be a good thing, though, as you can write that off…
My sister and my brother-in-law recently closed on their new first time home that they decide to construct.. They meet all the criteria for the first time home owner’s credit but received a letter in the mail form the IRS denying their request for the. All the letter mentioned was something in regards about the interest they had paid in the last three months of 2008 on the mortgage they received for the construction of the home. As law abiding citizens like all of us, we have to pay interest on these loans, but doing so unknowingly created a loophole that ultimately lead to their denial. Basically the IRS is saying that since they were paying for interest on mortgage loan in 2008 for a house that was being built ( and not ultimately moved into until august 2009) that they technically already had a house prior to 2009 therefore leading to their denial. It is a horrible loophole in this system and I hope not many other people are lead through this one! They are still struggling to fight this denial and trying to find how that can get information on trying to appeal the decision but the incompetent people working for the IRS don’t seem to know what they are doing…
suggestions anyone?!
Hi,
When my grandmother passed away, she left the house to me and my sister. I just bought a brand new house. Can I get the 8k tax credit?
Here is the situation. My sister bought my grandmother’s house. It was in a trust for years as my grandmother is in a nursing home. My sister paid fair market value for the home (2 appraisals). She has been told that she does not qualify for the credit. I argue that it was purchased from a “trust”, not a family member. Yes the trust (and proceeds of the sale) are for the benefit of my grandmother. Doesn’t seem fair as she paid what anyone else off the street would have paid—and rec’d the credit for! Lost cause? The purchase was in April 2009…prior to the new form 5405.
I recently bought a house from my parents, I know that means I do not qualify for the first time homebuyer tax credit, but that doesn’t seem fair. Me and my husband do not make that much and we have a baby on the way and the credit would really help us out. Does anyone know of anyway that still allow you to have the tax credit?
My wife and I purchased our house from my mother. We paid Fair Market value for the residence, no substantial discount and we are are not trying to scam the government. We believe we should be entitled to the Housing Tax credit. The purchase is exactly the same as if we purchased from a stranger. It is the Senate and House of Representatives that can change this IRS Code. We encourage anyone in this same situation to contact their Senator and Congressman and make them aware of this inequity. Wife and I are calling and writing our representatives, the more people that do the same the more chance the government will fix this inequity.
I was married for 29 years. When I filed for divorce, I bought a house, assuming I would qualify for this tax credit. My name was never on the home with my ex, he inheirited it from his mother. My name was not on anything during the marriage. Now, the IRS is disallowing the tax credit. This seems so unfair to me. Starting out with a new life, new debts, I was counting on this money. Any loopholes for someone like me?
Becky,
What happened to the house you lived in? Was it sold? Did you get any money from the sale of that house? Does your ex-husband still live there?
Seems it would be considered community property and you would legally own half of it regardless of the owner on title? Usually it can’t be sold without your signature at closing.
My ex still lives in the house. When we went to court, the judge said in Colorado, inheiritance is not community property. In the divorce settlement, I did not receive anything from the house. I purchased the house I am living in on June 5th, 2009, and my divorce was final April, 2010. I bought this house, and applied for the tax credit in good faith. The realator and my CPA both believed I qualified for the tax credit. There was a second mortgage on the house my ex took out in 2007, my name was not on that. Thank you for any advice.
Your CPA can fight the IRS’s disallowance of your credit. It will be tough, but it can be done through ‘tax court’. Also, it might get above the CPA’s head (so to speak) and it might requires the hiring of a Tax Attorney.
I have had some of these instances come through the tax office I manage.
Even if you lived in an old trailer with the wheels and hitch still on it, the buy a real house you get screwed. The IRS will get everyone’s hopes up by making these tax breaks sound like a good thing for the public but then find a myriad of ways to deny you. It’s what they do. They are trained and paid to find the smallest reason to deny you and you have no recourse.
Why bother?
I refinanced in my name my parents house in 2004 so they would not lose it, I never lived in the house. In 2007 i bought my 1st first and was told I could claim the 1st time credit ($7500). I just got a letter from the IRS that I was denied 🙁 because they show taxes were paid on my “parents” home in 2005. Dont know what to do, I never lived there and mu LO told me I would get the tax credit. any help would be appriciated.