Here are questions, along with answers, that registrants asked Amy McAnarney of the Tax Institute about the first-time home buyer tax credit. In some cases, the answers here go into a little more detail than what McAnarney provided during the webinar; in other cases, the answers closely track what she said.

 

 

Are there any ways for consumers to get the benefits of the tax credit up-front so they can use the money to help make a down payment?

No. The IRS has clearly stated that the home must be purchased prior to claiming the credit. (See: IRS Web site for more information)

 

 

I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time home buyer credit now? That would allow me to use the refund for a down payment.

No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit.  

 

 

Is there any reason why a home buyer can't use a loan from a relative for the down payment and repay the loan with credit proceeds?

The tax law does not include any language regarding the source of the down payment funds. However, the lender will likely require a gift letter. Mortgage lenders don't permit borrowing for a down payment against an unsecured asset, and a tax credit is an unsecured asset. An alternative approach worth looking into for borrowers who have a 401(k) retirement account is to borrow against that account and repay it later with any tax credit proceeds. However, with any matters of this kind, consumers should consult with appropriate mortgage and tax professionals.

 

 

Is there any reason a real estate brokerage can't offer buyers a bridge loan that's repayable with credit proceeds?  

No. Although the tax law doesn't prohibit such a loan, it may not be practical or advisable.

 

 

What are the rules for two unmarried people who are buying a house together to get the benefits of the credit?

The credit may be allocated in any reasonable manner among eligible buyers. For example, if three people buy a home, but only two are eligible to claim the credit, the credit may be split evenly between those two, divided between them in unequal portions, or claimed entirely by one of the eligible buyers.  Read more.

 

 

Can a home buyer claim the credit before they move into the house?

Yes, if the home is purchased. The taxpayer must have finalized the purchase of the home and intend it to be used as a principal residence. There is no “placed in service” requirement for a purchased home. (It’s likely that Congress assumed that a homebuyer would move into the home as soon as is practical.)

 

If the home is built by the taxpayer, the home is considered “purchased” for purposes of the credit when it is occupied as a principal residence.

 

 

For claiming the credit, is it enough to have a signed purchase contract or do you have to have closed?

The requirement is that the purchased be final, which generally occurs at closing. See number 1 above.

 

 

What are the prospects of Congress extending the credit for another year and to all buyers, not just first-timers?

It’s possible. There was a bill introduced earlier this year (HR 101), that would have provided up to a $15,000 refundable credit for all purchasers of a home. This bill seems to have died in Committee. Any future bill may include a requirement that the downpayment must be made with the taxpayer’s own funds, rather than borrowed funds.

 

Note: HR 525 was also introduced in the House. This bill would have repealed the repayment requirement for homes purchased in 2008. This bill also seems to have died in Committee.

 

 

If an adult son is on the deed with his Mother, but not on the note or mortgage, does he qualify for the tax credit?  If he doesn’t, then would his being on his Mother’s deed disqualify him from buying his own house?

If the son is a joint tenant, he has an ownership interest in the home. If he did not contribute the funds to pay for his share of ownership in the property, he acquired his interest in the home by gift, which is not a qualified purchase transaction. (IRC §36(c)(3))

 

Because the son has an ownership interest in the home, if he has lived in this home as his principal residence within the last three years, he is considered a homeowner and would not be eligible to claim the first-time home owner credit if he purchased another home. If, however, the son does not live in the home as his principal residence (and has not for the past three years), he would not be considered a homeowner for purposes of the credit.

 

Note: The son’s name can be on the deed as a Transfer on Death owner. In that case, he does not have an ownership interest while his mother is alive.

 

 

My customer is married but the wife purchased the home and her name is on the deed, not his three years ago.  He believes he is on the note only.  Is he eligible?

No. An individual who is married to an ineligible taxpayer is also ineligible to claim the credit. Read more.

 

 

If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time home buyer for the credit even though the wife would not qualify?

No. The purchase date determines whether a taxpayer is a first-time home buyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time home buyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.

 

 

Can an individual who purchased an investment property which is not his primary residence receive the credit for a purchase of a primary residence this year?

As long as he did not have an ownership interest in a principal residence for the past three years, he can qualify for the first-time home buyer credit. Ownership of a vacation or investment home is not counted for purposes of the FTHC.

 

 

If a buyer is on 100 percent disability and does not pay any taxes. Can they still get the tax credit?

Absolutely. Because the credit is refundable, taxpayers who pay little or no tax can still benefit from the full credit to which they’re entitled. Read more.

 

 

I don’t owe taxes and/or my income is exempt from tax and I do not have a filing requirement. Do I qualify for the credit? 

The credit is fully refundable and, if you qualify as a first-time home buyer, having tax-exempt income will not preclude eligibility. Although there are maximum income limits for qualifying first-time home buyers, there are no minimum income criteria. Thus, someone with no taxable income who qualifies as a first-time home buyer may file for the sole purpose of claiming the credit for a refund.

 

 

Is there an ending date as to when the buyer can file an amended file for 2008 if they buy in 2009?

An amended 2008 return must be filed no later than April 15, 2012. However, if the claim had not been made by the final date, the credit could be claimed on the 2009 return which could be amended through April 15, 2013.

 

 

Can you have a home owner co-signor?

A co-signor on a note is not a homeowner unless that person is also on the deed. The fact that a co-signor is not eligible to claim the credit does not affect the ability of the eligible owners to claim the credit. Read more.

 

 

Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much? 

Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

 

 

After the client receives back her tax credit she wants to then give that to the seller as down payment. Is this a possible scenerio?

Only if the seller lends the homebuyer the funds for the downpayment. Because the purchase of the house must be closed prior to claim the credit, the downpayment funds will have already been provided. (If a loan is made, the proper legal paperwork should be completed to ensure repayment of the loan and to avoid treatment as a gift.)

 

 

How is the tax credit applied in the transaction?  Is it applied to the total amount of cash that the home buyer brings to the closing table to reduce total amount of cash out of pocket? Please explain.

The credit doesn’t affect the purchase transaction. Any funds required at closing must be provided at that time. After the home is purchased, the buyer will claim the credit on an amended 2008 return or wait to claim the credit when he files his 2009 return. The amount of the credit will be sent to the taxpayer by the IRS after the claim for refund is processed.