Taxpayer asks:
I must say I enjoy reading your blog! A somewhat tax professional myself (I deal in state taxes), I am constantly asked Federal Tax questions and use your blog as an aid! So here’s my question:
Would purchasing a home, via taking over the payments, qualify for the New Home Buyer tax credit? There will be no formal closing, just an assumption of the mortgage.
Taxgirl says:
Thanks for the kind words!
I’ve thought about your question and with the limited facts as presented, here’s my gut answer…
To qualify, I think that you actually have to transfer title of the home even if there’s no “formal” settlement. Simply holding onto a mortgage doesn’t convey ownership of the property. However, if it’s a bona fide transfer for consideration, I would say that it still qualifies, even without a “formal” settlement.
But there is a “but” (of course). If I had to guess, I would say that it sounds like a related party might be taking over the mortgage. True? In that case, the “buyer” is definitely not entitled to the credit. The credit is not available for sales to or from related parties. Related parties would include your spouse, parents, grandparents and so forth up the line and then back down again via lineal descendants (children, grandchildren, etc.). Related parties also include corporations and partnerships in which you directly or indirectly owned at least 50% of the stock or ownership interests.
Other restrictions apply. To qualify for the credit, you must be a “first-time home buyer” which is defined by statute as a buyer who has not owned a principal residence (vacation homes or commercial properties do not count) in the three years prior to the purchase. For married taxpayers, the restriction does take into consideration a home owned by a spouse (in other words, if you have not owned a home in the past three years but your spouse has, neither of you qualify).
Phaseouts and income caps also apply. The income limit for single taxpayers is $75,000; the income limit is $150,000 for married taxpayers filing a joint return. The credit is subject to phaseouts and is eliminated at $95,000 for single taxpayers and $170,000 for married taxpayers.
Check the instructions for federal form 5405 for more details (available here for download as a pdf).
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
Have a question? Ask the taxgirl! – Now on Facebook!
{ 4 trackbacks }
{ 1 comment… read it below or add one }
Why would someone “purchase” a home and not take title? That seems peculiar. Depending on the state, there could be adverse state tax consequences, as well as descent and devise and homestead rights complications.
If it is a related party as Kelly suggests may be the case, then if the property wasn’t really “sold” then there could be gift tax consequences.