Ask The Taxgirl: MFS & Homebuyer's Credit

Taxpayer asks:

I read your blog everyday and find it enjoyable and knowledgeable.

My question to you today is about the First Time Home Buyers Credit. Last year my client filed MFJ. This year, they purchased a house but their combined incomes are over $170,000 so they are phased out and cannot get the $8,000 credit. Can they file MFS this year, as she makes less then $75,000, and qualify for the $4,000 credit?

Taxgirl says:

I say yes, so long as she otherwise qualifies. According to the IRS, “qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately.”

My only caution would be to run the numbers and make sure that qualifying for the credit doesn’t foul up anything else. Remember, with MFS, the tax rate will generally be higher than it would be on a joint return. More importantly, if one spouse chooses to itemize, the other must also itemize; this can be difficult if the primary reason for itemizing was the mortgage interest deduction. Other tax credits and items are affected, too, such as the AMT, child and dependent care expenses, EITC, and IRA rollovers.

So yes, but run the numbers to make sure it remains a good idea.