Deed for Homebuyers Credit

numbersjunkieFebruary 22, 2010

My son & I purchased a home in Rochester for him to live in while attending college. He filed for the home buyers credit in Sept, and we just received a letter from the IRS asking for documentation. They want a signed settlement statement and a copy of the deed, among other things.

I pulled the file we got from the lawyers (we did not attend settlement & it was a cash deal), and the deed states that we paid $1 for the property. The settlement sheet contains no signatures. I emailed the attorneys to ask about the $1 on the deed and have gotten no response.

Will this be a problem with the IRS? We have a copy of the wire transfer receipt, and a title policy for the correct purchase price. Tax records also show the correct purchase price.

Any suggestions?

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The information they are requesting is standard now, and they are requesting it from everyone to prevent fraudulent claims. The link below to the IRS instructions also states that they realize that home buying documentation is different in every jurisdiction, they realize not all require a signed settlement, but they request you sign the buyers section anyway. Be sure to read through the whole thing.

Two other items to keep in mind: your son cannot take the deduction if (1) you claim him as a dependent on your own tax returns (most college students are claimed by their parents as dependents so be sure you don't this year), or (2) he was under age 18 on the date of purchase (some students start college at 17, so this may or may not apply to you).

Here is a link that might be useful: IRS form

    Bookmark   February 22, 2010 at 2:12PM
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I do claim my son as a dependent, but the rules in effect at the time of the purchase (June, 2009) did not stipulate that condition. On the IRS Form (Rev December 2009) it says that rule applies for homes purchased after November 6, 2009.

But I do see where it says he can just sign the settlement statement before he submits it. Thanks!

I'm still a bit concerned about the $1 sale price listed on the deed since they have asked for that as well.

Also the IRS is asking for a copy of his drivers license showing the home address as his legal residence. Not sure what we will do about that - he did not get a NY license
since he is covered under our policy and we live in another state. Anyone know if they will accept utility bills or some other "proof" that you are actually living there?

Also, the rules in effect when we purchased the house stated the house had to be a "primary residence", not necessarily the "legal residence".

    Bookmark   February 22, 2010 at 2:33PM
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You need to get to a certified accountant asap. If you gave your son a house (or cash for a house) you may owe gift tax on most of it. That could be significantly more than the 8k homebuyers credit.

    Bookmark   February 22, 2010 at 2:45PM
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I know a gift tax return has to be filed, but it is our understanding that there is a 1,000,000 lifetime exclusion so it simply documents the fact that part of the exclusion was used.

    Bookmark   February 22, 2010 at 3:20PM
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Remember though, the 1 mil is going to count as part of your estate tax exclusion upon your death. If you've got enough money to be buying houses with cash, you are probably going to need some estate planning to keep your money from going to Uncle Sam. If you would have consulted a planner before the purchase, I'm sure they could have helped structure it as a series of $12k gifts over a number of years.

    Bookmark   February 22, 2010 at 4:17PM
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The amount in the deed has nothing to do with the actual price of the property, it is there only to make the deed valid.

The wording is usually something like 'I hereby transfer to XXX the property described as YYY for $1 receipt of which is hereby acknowledged.'

Deeds must have consideration in many states to be valid, so a token amount is named on the deed.

The HUD-1 form will have the real money amounts listed.

    Bookmark   February 22, 2010 at 4:18PM
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