Real Estate Matters

Family Tie Excludes Use of First-Time Buyer Credit

By Ilyce R. Glink with Samuel J. Tamkin
Saturday, August 22, 2009

Q: Three years ago, I sold a rental property in Maryland and used the proceeds to buy a single-family house near where my son lives in North Carolina so he could rent from me. After weathering an extended period of unemployment, he purchased the house from me in February, when he was able to qualify for a mortgage.

Why is he excluded from getting the first-time home buyer tax credit?

A: Unfair or not, the IRS has carved out an exclusion for family members buying from each other to weed out people who might be giving sweetheart deals to relatives just to claim the tax credit.

According to the IRS, you cannot take the credit, even if you buy a principal residence, if:

-- Your modified adjusted gross income exceeds $170,000 for joint filers or $95,000 for single filers.

-- You buy your home from a close relative. This includes your spouse, parent, grandparent, child or grandchild.

-- You stop using your home as your main residence.

-- You sell your home before the end of the year.

-- You are a nonresident alien.

-- You are, or were, eligible to claim the D.C. first-time home buyer credit for any taxable year.

-- Your home financing comes from tax-exempt mortgage revenue bonds.

-- You owned another main home at any time in the three years prior to the date of purchase. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another main home at any time from July 2, 2005, through July 1, 2008.

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