First Time Home Buyer Again

[joans]

I have a friend who is looking to buy a new house. However, here is her situation. Her ex-husband bought his house before they even knew each other. They got married, never put her name on the mortgage or on the property taxes. 1 1/2 yrs later they are divorced. Would she qualify for this credit. I have tried to look and haven't found any information regarding this scenario. I would almost say yes because she didn't buy the house, name was never on mortgage or taxes and didn't get anything from the divorce with the house. My only concern is because we are in Wisconsin being a marital property state. Any opinions or thoughts would be appreciated.

Sara

[jainen]

>>didn't get anything from the divorce with the house<<

Do you make this statement based on your client's explanation, or have you read the actual divorce decree? It is common for courts to consider, for example, that because a year and a half of mortgage payments were made from community property funds the wife had at least some community property interest in what otherwise would have been separate property. The divorce decree would show the property division as trading such an interest for additional cash or other marital assets.

If that is indeed what the divorce decree says, then she had a "present ownership interest" within the last three years and is technically not eligible for the credit. In my opinion, this is a pretty good question first thing Tuesday morning!

[joans]

>>didn't get anything from the divorce with the house<<

Do you make this statement based on your client's explanation, or have you read the actual divorce decree? It is common for courts to consider, for example, that because a year and a half of mortgage payments were made from community property funds the wife had at least some community property interest in what otherwise would have been separate property. The divorce decree would show the property division as trading such an interest for additional cash or other marital assets.

If that is indeed what the divorce decree says, then she had a "present ownership interest" within the last three years and is technically not eligible for the credit. In my opinion, this is a pretty good question first thing Tuesday morning!

I will have to ask, but I believe that because the husband bought the house before they were married, she didn't want anything from it. It was a pretty amicable divorce. They are both friends of ours. Now if the decree says that she didn't have a "present ownership interest", would she then qualify for the credit?

[Chowdahead]

Personally, if I was her, I would take the risk. Her name isn''t on the mortgage, nor on record with the municipality. She never signed a purchase and agreement for a home in her life. She may even qualify for First-Time Home Buyer status under FHA rules. You may wish to run the question by a reputable mortgage broker to determine if she would qualify for under FHA for programs for first-time home buyers. This is important because I believe it could be a valid defense in the rare instance in which the IRS conducts an audit.

In these economic times, $8,000 is a real help in a home purchase. Her name is not connected to the property in any way that would trigger an audit with the IRS. So any audit would be random. And if she is audited, she would have a reasonable defense since she never signed a purchase and sale agreement on a home, and the home wasn't purchased while she as married. Delving any further into applicable state laws of marital property would require her to hire a lawyer, on to whom she'll end up paying a good portion of the $8,000.

This is one of those classic cost vs. benefit scenarios.

[joans]

That is what I was initially thinking, but the community state thing is the only thing I was a little worried about. She probably did help with the mortgage while married, but he bought the house and her name was never on any of the paperwork after they did get married. Again, just the community property factor comes into play. I will advise her with both options and let her make the final decision. Personally, I would take the credit too. This is her first home buying experience and she should be entitled to it.

[jainen]

>>her name was never on any of the paperwork after they did get married<<

No kidding! Heck, I would have thought it would at least be on the divorce decree! And if the guy's lawyer was any good at all, her name is also on a Quitclaim Deed filed in the county courthouse--but then, why would he need to get one of those?

[joans]

She is looking at the Divorce Decree tonight to see if anything is mentioned. They didn't really fight over much on the divorce. They split up some of the personal belongings, but she never challanged anything with the house. Like I said it was a pretty amaicable split.

[jainen]

>>She is looking at the Divorce Decree<<

Hey, Joan. I'm just being ornery as usual. I hope you realize that everything I said about the divorce decree is irrelevant. Anything in it only applies to itself, not her tax return. So, regardless, if you DON'T let her take that credit we would all think less of you, and I would feel particularly guilty and, well, lousy.

[Kea]

Even being a community property state, you should be OK. Since he purchased it prior to marriage, it is his separate property. She was not legally responsible for any payments, so even if she did help pay them, that would most likely be considered a gift from her to him.

[mcb39]

>>She is looking at the Divorce Decree<<

Hey, Joan. I'm just being ornery as usual. I hope you realize that everything I said about the divorce decree is irrelevant. Anything in it only applies to itself, not her tax return. So, regardless, if you DON'T let her take that credit we would all think less of you, and I would feel particularly guilty and, well, lousy.

Wow, Jainen, that is some heavy stuff coming from you. Sara (from Joan's) hasn't been around long enough to have learned to read between your lines. Because I know her personally, I know that she would never do anything to compromise herself or her client. I think she should take the credit.

Sorry to hear you had medical issues. I had some myself on May 21; when I had anaphlaxic shock from black fly bites and got to have a 40 mile ambulance ride, sirens all the way. Since that close call, I have really come to realize how relative things are and how important it is to make the most of every day. Nor am I going to live in fear, but am going on with life as usual; just taking precautions.

[joelgilb]

I see Jainen in a whole new light. Its bright and seems to be shining down from somewhere up above.

Either that or he caught the swine flu. JK LOL

[joans]

Thanks for all the feedback everyone and I did advise my friend to take the credit. This board really helps me with a lot of issues since I haven't been "doing" taxes for very long. I have learned alot from everyone. Even on items I am not working on. I read alot of the topics just to get more of an education on tax preparation. I am really glad that this board is here and I have the people with the experience to help me through some of the tougher issues. Thanks again all and have a wonderful summer.

Sara

[joans]

Wow, Jainen, that is some heavy stuff coming from you. Sara (from Joan's) hasn't been around long enough to have learned to read between your lines. Because I know her personally, I know that she would never do anything to compromise herself or her client. I think she should take the credit.

Sorry to hear you had medical issues. I had some myself on May 21; when I had anaphlaxic shock from black fly bites and got to have a 40 mile ambulance ride, sirens all the way. Since that close call, I have really come to realize how relative things are and how important it is to make the most of every day. Nor am I going to live in fear, but am going on with life as usual; just taking precautions.

Marilyn,

Thanks for the vote of confidence:) I appreciate it. I hope you are doing better. Let me know if you need help with anything. You have been a great help to me this past tax season and I can't thank you enough for all the advice and everything you walked me through. It is very much appreciated. You will have to get one of those full body nettings so you don't get bit again. My mother-in-law has the same reaction to bug bites. She swells up really bad and has to take antibiotics when she get bit by a horse fly. Take care of yourself, cuz I need to pick your brain a lot more:)

Sara

[mcb39]

Surprisingly, one of my clients brought me a full body netting suit. I am doing just fine. We can do some deeper research on the Homebuyer Credit, but I think you are correct to have her take it. The only problem I see (re IRS) is whether she has kept her married name and will be filing as such. I had one client that was called on the fact that he had paid property taxes in the prior year. They were on vacant land, but he had to explain the situation and furnish proof of purchase of new home as well as proof that the property taxes he paid were not on a home. Will talk to you about this next week. (BTW, I am also allergic to the "cillin" family, but I do have an Epi Pen to carry now. Thanks to you as well as all the others on this board who expressed concern. :)

[joans]

My friend took her maiden name back already, so she should be fine for the credit. Thanks and don't work too hard. Have a great weekend. I am going to finally put my garden in:)

Sara

[BulldogTom]

Sorry this is late, but I would be careful advising that she is eligible. Did they file a joint return in any of the years that they were married and if so, was any mortgage interest or property tax deductions taken? The IRS will have all the amunition they need to disallow the credit if there is a prior year tax return within 3 years showing mortgage interest or property taxes.

Just my 2 cents. Sorry to be a wet blanket.

Tom

Lodi, CA

[joans]

They did file a joint return even last year because they were legally married as of 12/31/08. Even though her name isn't on the mortgage or on the property taxes and he bought the house before they even were together? She still wouldn't qualify? She personally never purchased a house. There are so many weird scenarios with this credit that it is very frustrating. Thanks. I will see if I can find more information or a scenario like this.

Sara

[jainen]

>>Did they file a joint return<<

I don't quite follow your position, Tom. Even in community property states separate income and deductions are still included on the joint return. It doesn't mean those are HER deductions, just that she's reporting jointly.

[BulldogTom]

I admit I don't know exactly what the code will say on this issue, or if this scenario is even contemplated in the code. However, I can see the IRS taking the position that the taxpayer had the tax benefit of home ownership. It may not be right, but the burden of proving the eligibility of the credit lies with the taxpayer.

Why am I playing devil's (IRS's) advocate here? That is your job Jainen.

BTW - I am glad to see you are back on the board. I missed you when you took your hiatus.

Tom

Lodi, CA