Okay, you have been estranged from your spouse for several years. You’d like to buy your first house and of course you want the $8,000 first time home buyer tax credit. You file your taxes as a single person–in fact, you file as a Head of Household because you are for all practical purposes a single parent. How does the credit work for you?
Unfortunately, it may not work at all. If your almost-ex has owned a home in the last three years, you are out of luck. Because you are still legally married, if your spouse is ineligible for the credit then you are also. According to the IRS, “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.”
If your kicked-to-the-curb husband or wife IS eligible for the credit, you get to take half of your maximum, that is, up to $4,000–just as though you were married and filing separately.
Other Restrictions on the First Time Home Buyer Credit
Keep in mind that the three-year rule is just one of the criteria that determine your eligibility for the credit.
* You don’t qualify if you buy your house from a close blood relative.
* You don’t qualify if the property is not your primary residence. If you have to move before you have owned the home for at least three years, for example if your job or other circumstances force you to stop using the property as your main residence, the entire $8,000 must be returned to the IRS.
* You don’t qualify if your modified adjusted gross income (MAGI) exceeds $95,000, and your credit gets phased out once your MAGI hits $75,000.
* You don’t qualify if you are a non-resident alien.
So as long as you are separated and not divorced, the biggest credit that you can possibly take is $4,000, and that’s only if the impending-ex hasn’t owned a main home in the last three years. With up to $8,000 at stake, now might be the right time to finalize that divorce.
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(7 votes, average: 5 out of 5)
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That seems so unfair. If you have a legal separation you should be considered unmarried.
Who ever said the IRS was fair? It’s a classic case of the letter of the law being more important than the spirit of the law. HUD’s definition of first-time home buyer is far more liberal.