Taxpayer A is single and sells his house in Feb. of 2010. He can exclude all the gain. Taxpayer B buys the house from him on 4-1-10 and qualifies for the credit. Taxpayer A and B get married in November of
2010. They are not related parties at that point. She would claim the credit on her single 2009 return, and he would be exclude his sale on his 2010 return when they are MFJ. Does this fly? Any pitfalls to be aware of? Thanks
How can she buy the house FROM HIM on April 1 if he sold it in February?
The question is nonsensical.
Sorry, dates messed up...planning to close then. It has been brought to my attention that this could be more an ethical question that a question of tax law. Any help always appreciated.
OP edited to reflect later correction and to fix the timeline.
It appears to meet all the requirements for the credit. (I'm no expert on related parties.) It also completely fails the smell test since it's clear what was really going on. It might help if she actually pays FMV for the house and gets the mortgage from a third party based solely on her credit and income and he doesn't wind up on the title. They could always claim it was love at first sight at the closing table.
Phil Marti Clarksburg, MD
Edited to reflect later correction and to fix the timeline.
IT DEPENDS on the facts and circumstances. If this were a question on an Auditing Take-Home Exam, I'd expect to find serious issues raised as to "Who are related parties"! Any auditor who can smell is going to ask questions about the nature of the relationship at the time of the sale. Although there are many who may disagree with me, I have always considered "shack jobs", regardless of gender, to be related parties.
I firmly agree with Phil as to "love at first sight at the closing table"
Dick
As far as I can tell, the IRC defines "related parties" (in the case where both are natural people) to be either members of the same family (siblings or ancestor/descendant), or the executor of an estate and a beneficiary thereof.
Provided the state of citizenship does not permit common-law marriages to form, I don't see how "shack jobs" count.
For that matter, how (legally) can you distinguish "shack jobs" from "roommates", especially in places where the latter are common to save on rent?
Seth
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