Q: I read your recent article about the IRS rules regarding the $8,000 first-time home buyer tax credit. I understand that the deal cannot be between close kin.

However, if our son (age 22) buys a home for $100,000, and we as parents provide $100,000 cash for the deal, is our son still eligible for the $8,000?

Actually, the cash we provide would be temporary. He would then get a mortgage on the property on which we would co-sign. The house would always be titled in his name only.

The reason I am considering this is to close a deal quickly, if needed. This would be then like a bridge loan, so I am hoping we could avoid gift tax issues too.

A: I believe that your son could buy the property alone or your son could buy the property with you and still qualify for the $8,000 first time home buyer tax credit. The IRS rules state that while you might have owned a home during the last three years, your son can’t have owned a home during that time period and his modified adjusted gross income must be less than $75,000. Above that amount, the tax credit starts to phase out.

Please talk to your tax preparer to make sure your son isn’t disqualified for another, undisclosed reason and can’t get the $8,000 first time home buyer tax credit. You might also think about simply giving your son a low-cost loan (with signed paperwork) to make it clear that you’re the lender. That way you would benefit from receiving interest payments from your son which would be higher than what you might be earning at the bank and your son would get the mortgage interest tax deduction on those same payments.

Also, you and your wife can give your son a gift of $26,000 ($13,000 each) which would provide him with more than 20 percent equity in the property. He can easily get a loan with that sort of discount, provided that he can afford to make payments on a $75,000 loan. Also, you and your wife can each give up to $1 million without triggering gift taxes. You may create a taxable event (you might have to file paperwork with the IRS and you would reduce your lifetime gift exemption), but you shouldn’t owe any taxes.

Finally, you should hire a real estate attorney to go over the documentation and advise you on how to structure this correctly so that you comply with IRS rules.

For more information on the Obama $8,000 First Time Home Buyer Tax Credit, read some of our other recent articles:

$8,000 First Time Home Buyer Tax Credit Not Available If You Purchase A House From Your Parents

$8,000 First Time Home Buyer Tax Credit Relief: New Construction Completion Date Is Key

$8,000 First Time Home Buyer Tax Credit Rules Regarding Relatives And Trusts

$8000 First Time Home Buyer Tax Credit Has Income Restrictions

Use $8,000 Tax Credit Toward Costs With FHA Loan

States Offers Individual Tax Credits Also: Check out these stories

State Home Buyer Tax Credits And Incentives

Georgia Home Buyer Tax Credit

Stay Tuned to see if the tax credit is renewed. It’s due to expire on November 30, 2009. Post your comments if you have any questions regarding the $8,000 first time home buyer tax credit.