00 First Time Home Buyer Tax Credit Has Rules Against Buying From Close Relatives
Q: I own a rental home. For the last five years, I have rented it out to my youngest son. I have my own principal home and intend to keep it.
Is there another way he can legally purchase the property from me and still be eligible for the $8,000 first time home buyer tax credit? Can I transfer the property to a third party through a quit claim deed, which can then sell him the property?
A: I’m sorry, but as far as I know, the answer is no, your son won’t qualify for the $8,000 tax credit by purchasing a property that you, his father, own.
The IRS rules specifically state that you cannot buy a home from a parent, grandparent, child, grandchild or parent-in-law.
Your question about transferring the property to a third party is interesting. Let me see if I have it straight: You’re suggesting that you circumvent the home buyer tax credit law by transferring ownership of the property to someone else, who would then turn around and sell it to your son. Your son would collect the $8,000 first time home buyer tax credit and you would rid yourself of the investment property.
You might want to discuss this issue with a real estate attorney, but it would seem to me that the scheme would run afoul of IRS rules and you could get into trouble for the setup.
Also, in many states, your transfer to another person could be costly and that person’s transfer to your son could also be costly. Those transfer costs could offset the tax credit or, at the very least, minimize the benefits with great risk to you and your son.
I don’t know for sure, but I think the IRS would frown on such a transfer. I wouldn’t try it.