Fiance Wants to Buy Her House

Today TaxMama hears from Margot in Tennessee, who tells us, “My daughter’s fiance would like to buy her house from her to benefit from the $8,000 tax credit for first time home buyers. They are wondering now if he could qualify for this benefit. He has good credit and is a first time home buyer. They plan to marry later this year but would like to do this now, but in no way want to do anything fraudulent.”

Dear Margot,

Have them be VERY careful.

Read the last FAQ on this page

http://www.irs.gov/newsroom/article/0,,id=187935,00.html

It’s going to be a fine line. He buys the house from her this year before they get married. Then they file a joint return. Or, even a married filing separate return…

Note: Incidentally, if filing separately, the credit is limited to $4,000.

IRS may look at the substance of the transaction, instead of the details and say that in effect, his wife is a related party – and that disqualifies them.

Personally, if I were going to do something like that, I’d have the house purchase in one year, while he’s still single – and get married the following year. That is, if it’s worth $8,000 to delay the marriage?

The sale must be at arm’s length fair market value. And your daughter stands to lose her home if she breaks up. BUT, she will get the proceeds from the sale. So keep that money in a separate account of her own just to be safe.

On the other hand, they love and adore each other and will do so forever, so this won’t be a problem. Will it?

And remember, you can find answers to all kinds of questions about the first-time homebuyers credit and other tax issues, free. Where? Where else? At TaxMama.com

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