Q: I am in the process of purchasing my first home and have a question about buying from a “relative.” The house belonged to my Father’s aunt who has passed away. I will be purchasing it from her estate and the executor of her estate is my Grandmother. Will I still qualify for the first-time buyer tax credit?
A: You can probably purchase the home from your great aunt’s estate and still qualify for the $8,000 first-time home buyer tax credit.
The IRS rules state you cannot purchase a home from a close relative, and the regulations specifically mention a parent, parent-in-law, grandparent, child or grandchild. IRS rules also state that you would not qualify for the tax credit if you inherited the home.
In your case you are purchasing the home from the estate. And, the relative in question here is your father’s aunt – your great aunt. Unless the IRS considers your great aunt a close relative to you, you should qualify for the first-time home buyer tax credit.
While much of the documentation prepared by the IRS says that you won’t qualify for the tax credit if you buy from a close relative, there is other information that the IRS uses in determining who is a relative for other purposes of the tax code and those IRS documents include ancestors.
Your great uncle is an ancestor and could preclude you from getting the tax credit if he is considered a relative. For this reason completely clear whether you can take advantage of the tax credit.
Talk to an enrolled agent or call the IRS and see if they can give you further clarification. And remember to keep the name and employment identification number of the person you speak with as part of a paper trail.
As far as forms, you’ll need to attach a HUD-1 settlement statement and a completed IRS Form 5405 with your federal income tax return in order to qualify. In addition, you may not earn more than $125,000 as an individual or $225,000 if you’re married. And, the property may not cost more than $800,000.
Make sure you get the documentation you need at the closing. And think carefully about hiring your own attorney (not the lender’s attorney at the closing) to look over the paperwork, babysit the transaction, help you purchase an owner’s and lender’s (if applicable) title insurance policy, and make sure you are protected.