UPDATE April 13, 2010: This post references a “Fourth Type” of Marriage Penalty questioning whether a married couple would qualify for the Home Buyer Tax Credit in situations where the couple has lived in a home for the requisite five-consecutive-years-out-of-eight period but only one spouse is on the title to the property. The IRS has now confirmed for us that in those situations, ownership by one spouse would be imputed to the other spouse, so those couples would indeed be eligible for the Home Buyer Tax Credit as long-time homeowners (assuming they otherwise qualify).
Some recent questions from visitors to HomeBuyerTaxCredit.com have brought up a new type of “Marriage Penalty” that we had not considered before. To remind you, we’ve started a campaign to challenge the IRS interpretation of the Home Buyer Tax Credit, which we’ve said creates a “Marriage Penalty” against married couples by rendering them ineligible to claim a tax credit in situations where an unmarried couple could claim a credit. We’ve previously identified three types of marriage penalties:
- Where one spouse qualifies as either a first-time home buyer or a long-time homeowner, but the other spouse does not qualify for either.
- Where one spouse qualifies as a first-time home buyer, but the other spouse qualifies as a long-time homeowner.
- Where both spouses qualify as long-time homeowners, but for different principal residences (i.e., they both lived in a home they owned for five consecutive years out of eight, but for different residences.
Based on questions from readers, we’ve now discovered a fourth potential type of marriage penalty: where a married couple has lived and owned in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home. In such cases, we fear that the IRS would find that married couple ineligible for the tax credit, because the tax credit legislation requires that both spouses qualify as long-time homeowners by owning and living in the same home for five consecutive years. If only one spouse has title, though, only that spouse would be an “owner.”
That said, the IRS has not specifically addressed this issue, and there’s reason to hope that the IRS would actually impute ownership of the property from the spouse on the title to the spouse who is not technically an “owner.” Namely, the IRS has specifically addressed issues involving separated (but not divorced) couples, and in those discussions has made clear that a separated spouse cannot qualify as a “first-time homeowner” if the other spouse still has ownership of a primary residence. The reason is that the spouse’s ownership is imputed to the other spouse, even if the two of them are legally separated. Here are the relevant statements by the IRS, based on “scenarios” presented to the IRS:
S5. Taxpayer purchased a home on April 24, 2008, while she was separated from her husband. Later in the year, they reconciled and were living together at the end of 2008. She has not owned a home since 2004 but he owned one which he sold in 2006. They remained married the entire time. Is the taxpayer eligible for the first-time homebuyer credit?
A. No. The purchase date determines whether a taxpayer is a first-time homebuyer. Since the husband had ownership interest in a principal residence within the prior three years, and the taxpayers were legally married, neither taxpayer may take the first-time homebuyer credit. Section 36(c)(1) 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. 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 wife may not take the credit even if she filed on a separate return.
S6. I have been estranged from my spouse for over three years and file married filing separate. I don’t know if my spouse has owned a main home in the last three years, but I have not. If I buy a house in 2009 that otherwise qualifies for the first-time homebuyer credit, can I claim the credit?
A. 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. If your spouse has not owned a main home in the last three years, then you may claim the credit.
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.
In all three cases, the IRS states that the separated spouse, who does not have title to the property, would nevertheless be rendered ineligible as a first-time home buyer because the other spouse owns property. Essentially, ownership by one spouse is ownership for the other spouse. (If you want to review all the IRS statements about the Home Buyer Tax Credit, check out our IRS Page for the links.
Well, if that’s the case, shouldn’t it go both ways? If ownership by one spouse is imputed to the other for purposes of denying eligibility as a first-time home buyer to the spouse who does not have title, shouldn’t ownership of the home by one spouse impute ownership to to the spouse who does not have title for purposes of qualifying the non-titled spouse as a long-time homeowner? And if that’s the case, and both spouses lived in the home for five consecutive years out of the last eight, shouldn’t it be the case that both spouses would then qualify as having “owned” for purposes of eligibility as long-time homeowners? That’s the way we would read it.
As of this writing, we do not know whether our reading is correct, but we are going to try to find out. Stay tuned for updates.
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I married and moved in with my husband July of 08. He owned a home. We sold his home last year in May and purchased OUR home (under my name-husband only has interest in deed) in September 09. I am being penalized because I married someone that owned a home.
I have a client that purchased a home in May 2005. If they sell their home in June 2010 and purchase another home by June 30, 2010, will they quality for the long time home owner credit assuming they meet all other eligibility criteria.
Hi @Kayla, thanks for posting. You’re the first person to at least state explicitly that you are a real estate agent (I assume, since you say that you’re talking about a client), so we’re happy to see agents on the board. The key to being the longtime homeowner is that they have to have lived and owned that property for five consecutive years at the time they close. Assuming they meet all the other criteria, then if they timed the sale correctly to make sure they hold title for five full years, then they would be eligible.
Hi @Kayla, yes, if they otherwise qualify, they only have to have owned and lived in that home for five years. May 2005 to June 2010 is over five years, so they would meet that requirement.
I owned a home for 8 years. I married my husband 3 and 1/2 years ago. He lived with me in the home for almost 2 years before we were married. He has never owned a home and was not on the title to my home. After hearing about the long time homebuyer tax credit, we decided to sell my home and buy a home together in November of 2009 (closed at the end of December of 2009) . Now it’s looking like we don’t qualify for the tax credit after all since we’ve only been married 3 1/2 years and I’m the only one who was on the title to the house we sold. I don’t understand why we’re being penalized for being married. If we weren’t married, he’d qualify for the $8000 first time homebuyer tax-credit, which would be even more than the long-time homeowner tax credit. That rule seems rediculous and un-fair.
You’re absolutely right in your reading!
I’ve said it before, but I’ll say it again – if you were in divorce court, and the court said you had your name on the deed but your spouse wasn’t, even though they lived there 5 years, contributed to its payments and upkeep, or even improved it, do you really think the court would rule that the non-titled spouse had no *ownership interest*? NO WAY. (fyi, the above scenario is my own, though I am still married and thus ineligible for either credit)
And since we’re not supposed to interpret Congress’ laws in a manner that creates inconsistencies or absurdities, your reading is correct, using the same logic advanced by the IRS’ illustrations.
‘Nuff said.
My wife and I have been married for 8 years, and lived in the home home that is in her name.
She has owned the home in her name for 15 years. I have not had a home in my name for the last 10 years. She has had no job for the last 10 years, and I have made the mortgage payments on the house, and then paid off the mortgage.
Do I have any ownership in the home?
Hi @Steve, unfortunately, that’s a question we still haven’t gotten an answer to. Your situation falls into the “Fourth” type of marriage penalty that we’ve described on the blog. Essentially, the question is whether you qualify as an imputed owner of the property since you’ve been married and living in the home with the titled owner (your wife). According to the literal language of the legislation, you would not be an owner, but we have reason to believe that the IRS would consider you an owner because you are married to the owner. We are still hoping the IRS will clarify this, but nothing yet.
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