LOS ANGELES (MarketWatch) -- The federal government is doling out as much as $8,000 to people who bought a home recently. Sounds simple, right? But collecting on that money isn't proving to be all that straightforward for some taxpayers.
You already know there are two different credits, right? They're both worth 10% of the purchase price of the home, up to $8,000 for first-time home buyers who have not owned a home for the last three years and up to $6,500 for people who've owned before, as long as they owned a home and lived in it for at least five years out eight, consecutively.
Here are some of the common problems cropping up.
A young couple doesn't qualify for a mortgage, or for a decent interest rate, because they're too young to have a credit history. So Mom and Dad qualify for the mortgage and buy the home. That's a dilemma encountered by some clients of Marlene DeBoisblanc, an enrolled agent in Westlake Village, Calif. The couple lives in the home and makes all the mortgage payments. Mom and Dad own a home and don't plan to move, so the parents don't qualify for either credit. Does the couple qualify? Yes. They may claim the full $8,000, according to Melvin Kreger, a tax attorney and enrolled agent in North Hollywood, Calif. The young couple is considered an equitable owner. Clearly, the intention has always been for this to be their home. This situation crops up all the time when someone has bad credit or no credit. How do you fix the problem with title and loan without committing fraud? Whatever you do, don't back-date documents. That's illegal. However, you can draw up current documents to memorialize the details of the original arrangement. Since you cannot add the young couple to the existing loan, consider drawing up loan documents between the parents and the children.
Home purchase, then wedding
A frequent question on TaxMama.com is about a home buyer who qualified for the first-time home-buyer credit when they were single and bought their home. Then, during the year they got married to someone who would not have qualified. When they file a joint return for the year, will the home buyer lose the credit? Should they postpone the wedding until next year?
Can landlords qualify as first-time buyers?
What if you used to own your home, but you moved out four years ago and have been renting it out ever since? Does that disqualify you from the credit if you buy a new home to live in?
Not at all, according to the IRS. You may own as much real estate as you like, as long as it has not been your primary residence for the last three years. In fact, you may even own a residence in a foreign country, and still qualify for the first-time home buyer credit. The only condition is that you did not own a personal residence in the U.S. during the last three years. You're entitled to the full $8,000 or 10% of the purchase price, whichever is less.