Woman ineligible for homebuyer tax credit

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Dear Tax Talk,
My husband and I have been married and filing jointly since 2006. He has been part owner of a house since 2005. In 2009, we bought our new home. Since I am a new homeowner, in 2009 I filed married filing separately and tried to claim half the first-time homebuyer tax credit. However, the IRS denied my claim for the tax credit stating, “Our records indicated that in 2008 your joint tax return had mortgage interest and real estate tax. Because of that, you cannot claim first-time homebuyer credit. We cannot process the change to married filing separately until we receive the allocation of a previously received refund. To properly review the allocation, we need the breakdown of the joint earnings, itemized deductions, credits and withholding taxes between you and your spouse.”

Do I still have a chance to get the first-time homebuyer tax credit if I amend my 2008 return to married filing separately?

— Connie

Dear Connie,
I’m not sure where you got the idea that you would be eligible to claim the first-time homebuyer tax credit by filing separately. A husband and wife for the most part, are considered as one for tax purposes. For purposes of the credit, you are considered as owning your husband’s home even if you file separately and have no ownership interest in the property.

Instead of regulations, the IRS has provided various scenarios on its website for answering questions relating to the credit. Scenario 4 provides the following advice pertaining to your situation:

S4. If husband and wife wanted to sell the home that the wife owned when they got married, and the husband had not owned a home within the past three years, could he qualify as a first-time homebuyer for the credit even though the wife would not qualify?

A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the wife had ownership interest in a principal residence within the prior three years, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) of the Internal Revenue Code requires that the taxpayer and the taxpayer’s spouse not have an ownership interest in a principal residence within the prior three years from the date of purchase. The husband may not take the credit even if he filed on a separate return.

A married couple that filed jointly cannot change to separate returns once the deadline for filing has passed. Hence you cannot go back and change your 2008 return even if it would have allowed you to claim the credit. It sounds like, from the IRS response, that you submitted a prior joint return for 2009 and now are trying to change to separate. Presumably you did this only to try to claim the credit which the IRS will not allow. If you have no other benefit from filing separate, then you probably don’t want to make this change. Since the IRS is not able to make the change without the allocations discussed, your best bet is to inform them that you do not want to make the separate filing in view of the disallowance of the credit.

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To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

Read more Tax Talk columns. To ask a question on Tax Talk, go to the “Ask the Experts” page, and select “Taxes” as the topic.