Will The $8,000 First Time Home Buyer Tax CreditA Tax Credit is an amount by which tax owed is reduced directly. In other words, a dollar-for-dollar amount is subtracted directly from the taxes you owe. Be Extended
Q: I am recently divorced. My ex-wife and I own a house together worth $250,000. Both of us moved out, and our daughter and her family moved into the house and are renting it from us.
Our daughter would like to buy the house. Is it better to do a quit claim deedA Quit Claim Deed is a deed that operates to release any interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. in a property that a person may have, without a representation that he or she actually has a right in that property. For example, Sally may use a quit claim deed to grant Bill her interest in the White House, in Washington, DC, although she may not actually own, or have any rights to, that particular house. to transfer our interest in the house to our daughter or have her buy it from us at its present market value and have her get the $8,000 first time home buyer tax credit?
A: I think your daughter would be better off tax-wise if she bought the property from you. But whether you give it to her or she buys it, she will not qualify for the $8,000 first time home buyer tax credit. The IRS specifically excludes parents, grandparents, children, and grandchildren buying from each other.
You can look up the rules on the IRS.gov web site or check with your tax advisor for more details.
Either way, make sure you have an attorney draft whatever paperwork you’re going to execute for the deal (whether you transfer your interests by quit claim deed or warranty deed, put the property in a trust that names your daughter as beneficiary, or sell it to her) to make sure you are protected.
If your property has appreciated greatly over time, your daughter may be better off inheriting the property from you rather than receiving it as a gift. If she takes the home as a gift, when she sells the home she’ll pay taxes on all the appreciation that you have enjoyed in the property. But if she inherits the home and sells it shortly thereafter, she may wind up paying no taxes on the sale of the home.
On a final note: Although there has been a fairly strong push from housing-friendly lobbying organizations, including the National Association of Realtors, MortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. Bankers Association of America, and the National Association of Home Builders, Congress left for the August recess without extending the $8,000 first time home buyer tax credit.
If you’re planning to use the credit (you’re a first time home buyer or haven’t owned a property in the past 3 years), you’d better get moving. My sources tell me that if you haven’t found the property, you want to buy by the end of September, you’ll run out of time to use the $8,000 first time home buyer tax credit because of the time it takes to get qualified and approved for your mortgage and to schedule the closing.
The weekend before the $8,000 first time home buyer tax credit expires is Thanksgiving, which means no business will be transacted on Thursday. The number of people trying to cram in closings in that final week will be enormous, so you’ll need to reserveThe Reserve is the amount of money set aside by a condo, co-op, or homeowners' association for future capital improvements. your time early.
My sense is that Congress may extend the deadline for the $8,000 first time home buyers tax credit into 2010 and may expand the program to include all home buyers. But home buyers won’t know about an extension until it’s almost too late to use the credit.
Bottom line: If you are a first time home buyer and want to purchase a house, get moving before the $8,000 first time home buyer tax credit expires.
Get more information about the $8,000 first time home buyer tax credit, including
income restrictions on the $8,000 first time home buyer tax credit
rules on buying from relatives when you want to obtain the $8,000 first time home buyer tax credit