First Time Homebuyer Credit - "loan co-sign'd"

[HV Ken]

Got a call from a realator today that I network with in BNI. He is working with a client with the following scenario:

Single TP purchasing first home. Cannot qualify for mortgage alone, so parents are doing the real estate equivalent of co-signing for the loan (I forget the technical real estate term, but it is not called co-signing). Parents will *not* be living in the home, and TP will be handling all the payments. The parents involvement is solely for qualification to obtain the mortgage.

Agent is concerned that having the parents name on the paperwork will impact the TP ability to either qualify for the credit or reduce the amount of the credit TP would be eligible for. The numbers are such that the full $8000 credit would apply.

Reading the instructions for Form 5405 (all 4 pages), it is not clear to me what the impact this scenario would create. Anyone care to share your thoughts on this ?

[Pacun]

The way I see it is that the taxpayer will only qualify for 1/3 of the 8K. Parents will sign the HUD-1 and the IRS will get a signed copy of it, correct?

[grandmabee]

The way I see it is that the taxpayer will only qualify for 1/3 of the 8K. Parents will sign the HUD-1 and the IRS will get a signed copy of it, correct?

I thought you could allocate credit any way you want that is reasonable

[HV Ken]

I thought you could allocate credit any way you want that is reasonable

When I read the instuctions, doesn't that only apply in the case of married taxpayers ?

[HV Ken]

The way I see it is that the taxpayer will only qualify for 1/3 of the 8K. Parents will sign the HUD-1 and the IRS will get a signed copy of it, correct?

Good question - will ask that of the agent in the morning. Thanks.

[chuck]

My mind leads me to believe that this could an attempted work around to parents getting a second home but the child saying it is their ( the child's ) primary home. And thus pocketing $8000. I am just playing the devils advicate

[jainen]

>>will ask that of the agent in the morning<<

Don't forget to ask the mailman and the grocery clerk. In my opinion they are just as likely to have heard all the best rumors.

Or, why not ask the IRS? "Co-purchasers who are not married may allocate the credit using a reasonable method. A reasonable method is any method that does not allocate any portion of the credit to a taxpayer who is not eligible for that portion of the credit."

http://www.irs.gov/newsroom/article/0,,id=206293,00.html [cut & paste entire link]

[HV Ken]

jainen, thanks for the reference, and the answer you cite is based on the question:

Q. How does the allocation provision work when unmarried taxpayers purchase a home together and both qualify for the first-time homebuyer credit under different tests?

That is not the case here. The parents do not qualify for the credit, which would negate the "and" clause.

The waters remain murky in my mind!

[HV Ken]

From jainen's reference, it led me to another page (http://www.irs.gov/newsroom/article/0,,id=206294,00.html),

where I found this:

S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?

A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

[jainen]

>>The parents do not qualify for the credit<<

Oh, sorry. I didn't notice the wording was changed a little bit when they edited it for 2009. Try Scenario S2 at

My link

[HV Ken]

Yes, as I discovered last night, Scenario 2 was an exact match. Thanks for pointing me in the right direction jainen!

[mcb39]

Jainen was correct as usual. I had one of those in August. Single girl qualified for the credit even though her parents signed for the loan. Parents did not qualify for any part of the credit. It is her residence, not theirs.

[jlewis]

From jainen's reference, it led me to another page (http://www.irs.gov/newsroom/article/0,,id=206294,00.html),

where I found this:

S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?

A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

What if parent is qualified to claim A as dependent for 2009 and other facts above are same? 5405 instructions page 2, item 3, doesn't allow credit if you can be claimed as dependent by someone else for "homes purchased after 11/6/09" and home is purchased before this date. Did a "test" return with this info, ATX allowed the credit, didn't disallow it if changed purchase date to after 11/6/09.

[mcb39]

Jainen was correct as usual. I had one of those in August. Single girl qualified for the credit even though her parents signed for the loan. Parents did not qualify for any part of the credit. It is her residence, not theirs.

My single taxpayer (who is now married) and had her parents co-sign for the mortgage when she bought her house; just got her check today.

[Tax Prep by Deb]

From jainen's reference, it led me to another page (http://www.irs.gov/newsroom/article/0,,id=206294,00.html),

where I found this:

S2. Taxpayer A is a single first-time home buyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?

A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

I have a slightly different twist. My clients and their mother are purchasing a house outright. There will be no mortgage, but my clients and mom will be on all the paperwork including the deed, property tax bill, hud statement ect... Mom does not qualify for credit, but this is my clients first home purchase. Would they qualify?

Deb!

[kcjenkins]

Yes.

[Tax Prep by Deb]

Yes.

Thanks KC.

I was pretty sure that it would be fine, as I couldn't find anything against it. My clients are so excited, and personally hadn't even thought of the credit until I mentioned they may qualify. I'm just waiting for them to close escrow then I will start the process for them.

Deb!

[mcb39]

Yes., KC is correct as usual. My further good news is that I checked to see when I prepared the amendment on my gal with the cosigners. It was 1/7/10 and she already has her check. Some things are moving right along.