Discussion:First time homebuyer credit-Divorce issue
From TaxAlmanac
| Revision as of 04:46, 11 September 2009 Maughact (Talk | contribs) (I found the foll) ← Previous diff |
Current revision Tiredoftaxes (Talk | contribs) (Wow, I am even m) |
||
| Line 82: | Line 82: | ||
| http://www.irs.gov/newsroom/article/0,,id=206294,00.html}} | http://www.irs.gov/newsroom/article/0,,id=206294,00.html}} | ||
| + | |||
| + | {{ForumReplyPost|UserID=Tiredoftaxes|Date=11 September 2009|Text=Wow, I am even more confused when I started. I guess I need to have her ask her attorney if Arkansas is an equitable distribution state and if she had an equitable interest in the house. It seems like a gray area since the IRS examples do not deal with divorce. To me it would seem like she had imputed ownership while they were married and that would carryover to when she was divorced. But it does not specifically say that. Can you ask for a ruling from the IRS? In all my years, I have never had to do that. Is that a possibility?}} | ||
Current revision
Discussion Forum Index --> Basic Tax Questions --> First time homebuyer credit-Divorce issue
Discussion Forum Index --> Tax Questions --> First time homebuyer credit-Divorce issue
Tiredoftaxes (talk|edits) said: | 9 September 2009 |
| I have a client who finalized her divorce in 12/08. She was married since 2004. They bought a house after they were married in 2004, but the husband only had his name on the legal papers and mortgage. The client bought a home in 1/09 solely in her name. So as of the date of purchase(1/09), she was single. She is stating that her lawyer told her that she qualified for the credit. After researching the topic, I am not sure. Does being previously married and the husband owning the house solely imply that she had ownership interest in the house? She did not receive the house in the settlement, nor any of the tax deductions relating to it. She didn't technically own a personal residence prior to the divorce, but her husband did. Or does the date of purchase, since it is subsequent to the divorce, mean that she does not have any ownership interest in the old house? I would appreciate any help in this matter. | |
| 9 September 2009 | |
| "36(c)(1) FIRST-TIME HOMEBUYER. --
The term "first-time homebuyer" means any individual if such individual (and if married, such individual's spouse) had no present ownership interest in a principal residence during the 3-year period ending on the date of the purchase of the principal residence to which this section applies." But she was married to someone that had ownership within the last three years. | |
Tiredoftaxes (talk|edits) said: | 9 September 2009 |
| So to her point that she is not married when she bought the house, it makes no difference. Since she had a spouse within the last three years that owned a house, she is considered to have owned it also. Why would the attorney have said that? | |
| 9 September 2009 | |
| "Why would the attorney have said that? "
Believe the Code - not the attorney. Perhaps you might enlighten him/her. | |
| 9 September 2009 | |
| The attorney is basing his opinion on IRC Sec. 36. However, I believe that IRS is not really following the statute on this issue. IRS has made an informal announcement that a married person is considered to have an interest in a home if his spouse had an interest in the home. Clearly, this makes sense in a community property state, but otherwise, it only makes sense if the property was "marital property". | |
Tiredoftaxes (talk|edits) said: | 9 September 2009 |
| It is in the state of Arkansas which is not a community property state. So where does that leave me? Go with my gut to not allow it or keep looking? I have looked at IRC Sec. 36, is there anywhere else I can look? | |
| 9 September 2009 | |
| May be attorney is interpreting and if married to mean at the date of purchase subsequent to the divorce. That is to say, if it said and if/was married within the last three years, then attorney would not take his present position. | |
Tiredoftaxes (talk|edits) said: | 9 September 2009 |
| Is there any separate guidance? Is the attorneys stance legitimate? I really do appreciate your help. | |
| 10 September 2009 | |
| The IRS "Scenarios" page states that: "Eligibility for the first-time homebuyer credit is determined on the date of purchase." This is in the context of a single buyer later marrying a home owner. There's some merit to the argument that "and if married" applies to the date of purchase only and not the three year period. Let's propose the opposite scenario: non-homeowner marries an ex-homeowner. Does that now disqualify the non-homeowner? Would it not be logical that if marriage imputes the spouse's previous ownership then divorce expunges it? But who says the tax code is logical? | |
| 10 September 2009 | |
| I believe that Arkansas is a marital property state. Consequently, I believe that each spouse would have an equitable interest in any property acquired during the marriage (other than gifts or inheritances).
Check with the client. Perhaps, they had a prenuptial agreement, or perhaps the home was acquired with gifted or inherited funds. | |
Tiredoftaxes (talk|edits) said: | 10 September 2009 |
| The ex-husband, an attorney, had her sign a document that said she realized she was not on the title of the house. The bank had her sign it after they already had closed on the house. She does not have any record of it. So, I do not have anymore information than that. But I do not see any example by IRS with regards to this specific issue.
Would that be a question to ask her lawyer? Did she have an equitable interest in the house? I have no idea. Is there a specific form we need to have the client sign to protect us with regard to the credit? Such as the Earned income credit information. | |
| 10 September 2009 | |
| If the IRS I'd checks last year's return, what would they see? Taxpayer filed MFJ and took home mortgage deduction!!?? Lot's of explaining to do! Better document it well.
Was there a prenuptial agreement excluding the home from her vested interest? Or was the disposition of the home included in their divorce settlement?
| |
| 10 September 2009 | |
| The fact that an individual is not on title does not necessarily mean that the individual does not have an equitable interest in the property.
You probably have enough information to determine whether the wife had an equitable interest in marital property under Arkansas law. See statute below.
(1) Property acquired prior to marriage or by gift or by reason of the death of another, including, but not limited to, life insurance proceeds, payments made under a deferred compensation plan, or an individual retirement account, and property acquired by right of survivorship, by a trust distribution, by bequest or inheritance, or by a payable on death or a transfer on death arrangement; (2) Property acquired in exchange for property acquired prior to the marriage or in exchange for property acquired by gift, bequest, devise, or descent; (3) Property acquired by a spouse after a decree of divorce from bed and board; (4) Property excluded by valid agreement of the parties; | |
| 10 September 2009 | |
| See below for IRS version of "imputed ownership"
S7. I am separated from my spouse and considered unmarried, and qualify for the unmarried head of household filing status. My spouse has owned a main home in the last three years, but I have not. If I buy a home on May 1, 2009, that otherwise qualifies, can I claim the first-time homebuyer credit? A. No. Section 36(c)(1) requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The taxpayer may not take the credit even if filed on a separate return. | |
| 10 September 2009 | |
| Is the issue in focus in S7 whether she's married or not? Would the answer be the same if she was divorced instead of separated? Is IRS defining "married" or are they defining imputed ownership from a previous marriage? It seems like they are simply saying that married and legally separated is still considered married for the purposes of the first time home buyer credit. | |
| 10 September 2009 | |
| I believe they are saying that ownership by one spouse implies that the other spouse has an ownership interest as well. This would be true in most "equitable distribution" or community property states, but what if family court awarded the home to the spouse on title? I beieve that Arkansas is an equitable distribution state. | |
| 11 September 2009 | |
| I found the following scenarios on IRS website that I think answers this question which would be "no": | |
Tiredoftaxes (talk|edits) said: | 11 September 2009 |
| Wow, I am even more confused when I started. I guess I need to have her ask her attorney if Arkansas is an equitable distribution state and if she had an equitable interest in the house. It seems like a gray area since the IRS examples do not deal with divorce. To me it would seem like she had imputed ownership while they were married and that would carryover to when she was divorced. But it does not specifically say that. Can you ask for a ruling from the IRS? In all my years, I have never had to do that. Is that a possibility? | |
