First Time Homebuyer Credit - MFS

[HV Ken]

TP and SP file Married Filing Separate. They have been married for many years and have rented until now (>3 years).

TP purchased home 1/13/10 for ~250,000.

TP AGI is ~55,000. SP has no income from any possible conceivable source and will not be filing a return (jainen - did I miss any assumptions here?).

All paperwork for the house, mortgage, etc. is solely in the name of the TP. SP name is nowhere to be found on it.

I am finding the instructions for Form 5405 to be a little confusing. They state:

If married individuals buy a main home and do not claim the credit on a joint return, they can also allocate the credit between them using any reasonable method. A reasonable method is any method that does not allocate all or a part of the credit to a co-owner who is not eligible to claim that part of the credit.

For married taxpayers filing separate returns, the amount of the credit allocated to each spouse cannot exceed the smaller of (a) the amount on line 3 or (b ) the excess of line 2 over the amount allocated to the other spouse on the other spouse’s Form 5405, line 4.

Can I conclude that it would be reasonable for the TP to therefore claim the full $8000 credit ? Or am I missing something ?

[Pacun]

Can I conclude that it would be reasonable for the TP to therefore claim the full $8000 credit ? Or am I missing something ?

[HV Ken]

Perhaps I missed the obvious on page 2 of the instructions:

First-time homebuyer. Generally, the credit is the smaller of

• $8,000 ($4,000 if married filing separately), or

I suppose this clearly trumps any other part of my question....

[Pacun]

Perhaps I missed the obvious on page 2 of the instructions:

First-time homebuyer. Generally, the credit is the smaller of

• $8,000 ($4,000 if married filing separately), or

I suppose this clearly trumps any other part of my question....

That's the answer to your question. Since your client is filing MFS, the credit for this tax payer will be the smaller of $4,000 or 10% of the cost of the house. No way the credit will be bigger than $4,000. Wait for the divorce and claim the 8K next year when TP files single.

[Jack from Ohio]

What would prevent the SP from claiming her $4,000 REFUNDABLE credit?

[HV Ken]

Thanks - but not sure why you think divorce is in the air....

[Pacun]

Because you never mentioned that you could file jointly. File jointly and end of conversation, then. AND they will get extra 400 for the making work credit.

[elfling]

What would prevent the SP from claiming her $4,000 REFUNDABLE credit?

That would be my question also. SP should have no problem claiming the other $4K. Whether or not she shares with TP is their business. One wonders why MFS and there could be many reasons. If it happens to be because of a debt and they find it easier than wrangling with allocation (F8379), then the refund may go toward quelling some of that debt. Possibly something to consider.

[HV Ken]

They file separate because she has outstanding obligations and the MFJ refund would be garnished (no need to mention injured or innocent spouse here).

They just bought the house together less than one month ago!!!!

[HV Ken]

...the refund may go toward quelling some of that debt. Possibly something to consider.

We did pose that option to SP. SP is contending the issues causing her to be garnished, so prefers to not have any money to be going towards the obligation.

Even so, one question I still have is: if her name is nowhere to be found on the paperwork, can she even apply for the other $4000 of the credit ? When the HUD statement is attached and mailed in, her name won't be on it.

[Pacun]

Save yourself a nice headake. File MFS and get TP 4K. Then file MFJ and let the IRS keep the other 4K (plus $400 of work credit) to cover the debt. Next year you continue doing what you have done in the past.

"Even so, one question I still have is: if her name is nowhere to be found on the paperwork, can she even apply for the other $4000 of the credit ? When the HUD statement is attached and mailed in, her name won't be on it."

You will send a copy of the marriage certificate and a nice letter explaining the situation.

[Pacun]

It seems that ATX doesn't have a safeguard for mistakes made LN 4 Calc Alloc Credit worksheet.

If you Go to LN 4 Calc Alloc Credit worksheet and enter the cost of the house on line 1 and you enter $8,000.00 on line 5, the 8K will flow to the 1040. If the IRS rules say that you can allocate between spouses in a fair way, your client deserves the $8K and going to that worksheet will be the answer.

[HV Ken]

Are you suggesting this for the MFS case, when the instuctions clearly indicate the credit is capped at $4000 ?

It seems that ATX doesn't have a safeguard for mistakes made LN 4 Calc Alloc Credit worksheet.

If you Go to LN 4 Calc Alloc Credit worksheet and enter the cost of the house on line 1 and you enter $8,000.00 on line 5, the 8K will flow to the 1040. If the IRS rules say that you can allocate between spouses in a fair way, your client deserves the $8K and going to that worksheet will be the answer.

[HV Ken]

Save yourself a nice headake. File MFS and get TP 4K. Then file MFJ and let the IRS keep the other 4K (plus $400 of work credit) to cover the debt.

This is a very intriguing suggestion. Gonna have to marinate on this one. Thanks!

[kcjenkins]

I agree with Pacun, after all, if they file jointly and her half is paid on her debt, and then she wins her fight over the amount she owes, she'll then get the money back. If she does not win, she is still better off.