Thomas Ajava asked: The federal government has initiated a host of programs trying to rev up the government. From Cash for Clunkers to the First-Time Home Buyer tax credit, these programs have in fact revved up the auto and real estate markets. Alas, the IRS is starting to take a keen interest in those claiming the first-time home buyer tax credit and is, in fact, starting to audit returns where the credit claim is questionable.
A down payment is obviously one of the big hurdles to buying a home. Faced with a real estate market that could only be called morbid, the federal government came up with the first-time home buyer tax credit. This essentially provided $8,000 for a down payment so long as certain requirements were meant. The program has been a huge hit and real estate markets across the country are starting to come back a bit. The only problem is many people just assumed they could claim the credit so long as the home was their first. This is wrong and leading the IRS to start scrutinizing tax returns that include a claim.
I am looking to buy my first home. My parents own their home and a second rental property in town. Given the economic mess, the rental market has been down. After talking about it, we agree that I will buy their rental property as my first home. I claim the first-time home buyer tax credit, get a loan and move into my first home. Everything is fine, right? Unfortunately, it is not. I cannot claim the tax credit if I by from a related person. Arguably, I’ve just committed tax fraud!
There are a host of rules that apply to the first-time home buyer program. They are easy to understand, but few people realize they exist. Make sure to cover them with your tax professional before you buy that first home or you could really regret it.
Juanita
