$8,000 First Time Home Buyer Tax Credit Rules Regarding Relatives And Trusts
Added August 7, 2009 by Ilyce R. Glink and Samuel J. Tamkin
Summary: $8,000 First Time Home Buyer Tax Credit Rules are quite specific and can be complicated. There are specific first time home buyer tax credit rules regarding who can receive the tax credit and what purchases qualify for the tax credit. The $8,000 first time home buyer tax credit rules are very clear in that any purchase made from a close relative cannot qualify for the $8,000 first time home buyer tax credit. There are other $8,000 first time home buyer tax credit rules for income restrictions and personal residences. However, the $8,000 first time home buyer tax credit rule regarding purchasing from relatives is very specific and cannot be avoided.
Q: I understand the $8,000 first time home buyer tax credit program excludes house purchases made from a family member. Does that include a purchase made from a trust that has as its executor my father-in-law?
Here’s the short version of the story: My wife's mother passed away last fall. My wife's father has purchased a second home. My wife and I are purchasing the old home from a living trust set up in the name of my father-in-law. Would we be eligible for the $8000 credit if all other criteria are met? We are purchasing the home at fair market value.
A: You have a problem on your hands. The $8,000 first time home buyer tax credit program allows people who have not owned a home as a personal residence (if you owned a second home or an investment property you would still be considered a first time buyer) within the last three years to purchase a home and receive an $8,000 tax credit on their federal income taxes.
There are additional restrictions on this $8,000 first time home buyer tax credit, including an income restriction. The tax credit phases out if more than $75,000 (or $150,000 if you are married) and if you make more than $95,000 (or $170,000 if you are married) you lose out entirely on the first time home buyer tax credit.
Also, the tax credit is limited to 10 percent of the value of the home with a cap of $8,000. If you purchase a home that is worth less than $80,000, you won’t get the $8,000 benefit of the first time home buyer tax credit.
Now if you qualify on all of these issues, the IRS has thrown another curve ball for some homeowners. The IRS says that you can’t qualify for the $8,000 first time home buyer tax credit if you “buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.”
And here is where it gets tricky. You would be buying your home from a trust. But that trust owned your father-in-law’s and mother-in-law’s home. The IRS has certain rules regarding related parties and how they view corporations, companies, partnerships, and trusts. It’s most likely that the IRS would take the view that your intended home was owned by a close relative and therefore disqualify you from receiving the $8,000 first time home buyer tax credit.
Learn more about the income restrictions for the $8,000 first time home buyer tax credit and when you have to pay back the $8,000 first time home buyer tax credit
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Additional Topics
(View All Topics)HUD IRS consumer advice first time home buyer foreclosure home buying ilyce glink mortgage mortgage lenders personal finance advice real estate real estate advice real estate market tax credit taxes
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Comments
Clark's Fan says
Good point to be considered while looking a mouth watering tax credit offer.
Eric says
Will the $8,000 tax credit be avilable next year??
Ilyce says
Eric: At the moment, the $8,000 first time home buyer tax credit is going to expire on November 30, 2009. I have heard nothing about this being extended.
Ilyce says
Clark's Fan: Thanks for the comment.
Aaron says
Unique question. I got married and my wife had purchased a house under SD Housing Assistance prior to us being married. I married her but the house was still under her name. I'm getting divorced and would like to take advantage of this if possible. Am I out of luck, because she already purchased a house and we were married for a 1.5 years?
Jamie says
Would my wife's brother-in-law purchase of a home from her, then placed into a living trust under the brother-in-law for asset protection still qualify for the credit?
Ilyce says
Aaron: Yes. Because she owned a house for the past three years and you were married you are out of luck. It's unfortunate, but a quirk of the current tax law. There are some proposals to get the tax credit extended and do away with the "means testing." Watch for this because if it happens, you would likely qualify for a tax credit because the "first-time buyer" part of the tax credit would go away.
Ilyce says
Jamie: Gee, that sounds like a pretty complicated $8,000 tax credit scenario. I want to be honest: I really don't know if that scenario would pass muster. But look at my answer to Aaron - if Sen. Johnny Isakson's $10,000 tax credit extension and expansion passes, the means testing would go away and everyone would qualify for a tax credit, as long as it's for a primary residence. There is no tax credit assistance being proposed for a second home or investment property. Hope this helps. Thanks for leaving your comment.