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.
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Have them be VERY careful.
Read the last FAQ on this page
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.
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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
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- IRS FAQs :: First Time Homebuyer Credit