As part of our general campaign to end the Marriage Penalty in the Home Buyer Tax Credit, we were interviewed last week by a reporter from the National Journal about the issue. He wrote up an extensive piece about the issue, which unfortunately was unfortunately behind a subscriber wall when it initially came out. But it’s live now, and you can read it here:
In fact, we’ve seen a bit of a spike in the traffic on the site this week, and a spike in the Questions section from people asking about the Marriage Penalty, so we think that a lot of people are just discovering the problem.
The funny part about it is that the reporter only discovered the issue when he was getting ready to file his taxes, and realized that he was not able to claim the credit because of the marriage penalty. I guess what we need now is for someone related to an important Senator to discover the same thing….
But given the new surge of questions on the Questions section of the blog, we didn’t clear enough up. The new question of the week is this: if the IRS will “impute” ownership of the main home from the titled spouse to the untitled spouse, to allow both spouses to qualify as “long-time homeowners”, what happens if the couple wasn’t actually married during the entire time that they lived in the home?
That is, let’s say that we have a couple Harry and Wendy. Wendy bought a home for herself in 2000, met Harry in 2001, Harry moved in with Wendy in 2003, and they’ve lived together in that home since 2003. If they got married that year, the IRS has now confirmed that they would be eligible for the tax credit even though Harry would not be on the title and not technically a “home owner,” because his wife’s ownership would be imputed to him. Conversely, if they were never got married, they’d be eligible for a Home Buyer Tax Credit (she’d be eligible as a long-time homeowner, he’d be eligible as a first-time home buyer).
But let’s say that after all those years together, they made it official last year, and got married summer 2009. Uh oh. Are they still eligible? Literally speaking, they would not be, because she qualifies for one type of credit and he qualifies for another type of credit, which is the classic Home Buyer Tax Credit Marriage Penalty problem. But now the question becomes whether that “imputed ownership” issue will allow Harry to qualify as a long-time homeowner because (1) he lived in the house for all those years, and (2) he is now married to the person who owned it all that time.
We don’t know the answer to this question, but we’ll try to find out. On the one hand, the IRS has interpreted all these Home Buyer Tax Credit requirements very literally. On the other hand, it does not seem like the IRS cares so much about the length of marriage, but simply about whether you’re married right now or not. So it’s up in the air. We’ll try to find out.
We finally got confirmation from the IRS about the Fourth Type of marriage penalty that we’ve discussed on this blog. I just had a conversation with a Mr. Schriber from the IRS, ID #0571682, who has confirmed for me the following: if a married couple has lived in a home for five consecutive years out of the last eight, but only one spouse is on the title to the home, the untitled spouse qualifies as an “owner” for purposes of satisfying the ownership history requirements of the long-time homeowner home buyer tax credit.
This is very good news. We’ve gotten probably a dozen questions on the Questions section of the blog from people who are in this situation, which makes sense given how likely it is that a couple would get married after one spouse already owns a home, and then live in that home for a long period of time. Although the legislation literally requires both spouses to be owners of the property, the IRS imputes ownership from one spouse to the other, which is something we speculated about when we initially discussed this issue.
We will be updating the various blog posts about this issue, and trying to find all the questions about this issue so we can let people know the good news. That said, nothing about this changes the other three types of Marriage Penalties, which prevent a married couple from qualifying for the tax credit if one spouse is ineligible, if the spouses are eligible for different types of credits, or where both spouses are long-time homeowners but for different residences. To change that, we’re going to need Congress to pass the legislation drafted by Congressman Engel.
My thanks to Mr. Schriber for clarifying this issue for us.
We get a number of inquiries on our Questions section about the income limitations in the Home Buyer Tax Credit. People are still a little confused about the “new” income limitations, even though they now go back over four months. To help people through it, we put together a video about the income limitations and how they apply, something that might be helpful as people are getting ready to file their tax returns in a few weeks.
As you can see on our countdown on HomeBuyerTaxCredit.com, we have only 50 days left for buyers to get into contract and claim the Home Buyer Tax Credit for their purchase. That’s still a lot of time, even enough for people who haven’t started looking yet, but remember that it does take time to get through the contract process even after you find the home you want to buy.
Our new video — Seven Ways to Make Sure You Meet Your Home Buyer Tax Credit Deadlines — gives you some guidance on how to ensure that you don’t miss the April 30 deadline. Here are the highlights:
The Deadlines
As you might know, the Home Buyer Tax Credit has two principal deadlines:
· You have to be in contract by April 30th, 2010; and
· You have to be closed by June 30th, 2010.
These are hard deadlines. It’s not like high school when you can go to your teacher and ask for an extension because you were sick over the weekend. The government is not likely to issue another extension of the tax credit, and the IRS has been extremely strict about enforcing the deadlines.
Remember that getting into contract on a home can take a lot of time, that you have to get all these things done:
· Find the right real estate agent.
· Find the right mortgage officer
· Get pre-qualified for a loan amount.
· Look at lots of homes online.
· Look at lots of homes in person.
· Find the right home, and make an offer.
· Negotiate the price and terms.
· Arrange and hold an inspection.
· Deal with the inspection results.
· Hire an attorney to review contracts, if you are in an attorney state
· Review contracts with attorney, sign and return.
And then even if you’re in contract by April 30th, you’re not home free, because you still have to be closed by June 30th, which gives you only 60 more days to get through the title and financing process. And those can take a while.
Moreover, I fully expect that as we get closer to these deadlines, we’re going to see business activity explode. If you wait too long, you might have trouble scheduling an inspection when the inspectors are being hammered with urgent calls from people in the same position. A lot of people are going to be scrambling to get into contract in the last two weeks of April, and closed in the last two weeks of June. Try not to be part of that mob.
So here are 7 Tips for Meeting Your Home Buyer Tax Credit Deadline:
As part of our new set of videos for HomeBuyerTaxCredit.com, we put together a video tutorial on the tax return filing issues that have come up with the Home Buyer Tax Credit. This video covers:
What forms you need to file to claim your credit.
Documentation you’ll need to prove that you’re entitled to a tax credit.
Issues relating to whether you should file for your 2009 or 2010 taxes.
We have a bunch of new videos this week at HomeBuyerTaxCredit.com, so we wanted to make sure we highlight them here on the blog. In this video, we discuss all the issues that come up when you are buying with someone else, such as a girlfriend/boyfriend situation, unmarried life partners, or someone getting “help” from his or her parents.
We put together the video because we get a lot of questions on the Questions section like this:
I qualify, but my boyfriend doesn’t, should I buy on my own?
Does it matter if my parents are on the mortgage with me?
How much of a credit do I get if I’m buying with someone else?
We answer all those questions in the video. Check it out.
For those of you who can’t get through our 20-page Special Report on the Marriage Penalty in the Home Buyer Tax Credit, or don’t have time to read through all our posts in the matter, we’ve finally put together a video that explains everything you need to know about the marriage penalty. Please take a look.
UPDATE April 13, 2009: The video 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).
UPDATE 3.09.10: We have added the video we made about the Marriage Penalty.
UPDATE 4.13.10: The video 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).
We know that a lot of you have been following our coverage of the “Marriage Penalty” in the Home Buyer Tax Credit, particularly those of you who have been affected. We wanted to give you an update on two fronts:
First, we have put together a “Special Report” on the Marriage Penalty, which summarizes and reorganizes everything we’ve written about the Marriage Penalty in the Home Buyer Tax Credit. We thought it would be helpful as a document to send out to people who might be interested in the issue, particularly for your Congressional Representatives so that they understand the issues presented.
Second, and more importantly, we have a bill — H.R. 4701! Congressman Eliot L. Engle, the Representative for the 17th District of New York (and, in fact, my Conressman) has drafted a bill to fix the Marriage Penalty and is circulating it among his colleages on the House Ways and Means Committee. We have no idea if this bill has any chance of passage, but we are hopeful that our Congressional leaders will see that the impact of the Home Buyer Tax Credit will be severely undermined by the Marriage Penalty.
If you want to get involved, here’s what you can do:
Join our Facebook Cause, which is now up to 250 members. We’re not exactly “Farmville,” but it’s something….
Dumb Decision #1: Allow people already in contract as of November 6th to claim the credit.
If smart decision #1 was not making the November 2009 home buyer tax credit retroactive for earlier closings, it was similarly dumb to allow the tax credit to retroactively apply to deals that were in contract at the time. It’s great for people who got into contract prior to November 6th at a time when they did not qualify for a tax credit, who get a windfall, but it didn’t exactly create an incentive. Those people got into contract based on their own judgment that it was a good time to buy, and obviously, if they didn’t qualify at the time, were not depending on a tax credit. Giving them the windfall is great for them, and maybe good for the economy if it gives them money they’ll spend to buy stuff, but not exactly in line with the purpose of the credit. Congress knew enough to set a contract deadline of April 30, 2010 for the new credit, so it could easily have made the credit effective only for deals in contract after November 1, 2009 (or any other date). Continue reading →
