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Here is an interesting scenario, I am wondering what some other people think.
An unmarried individual, Jon, has offered to refinance his girlfriends house, Jane, in exchange for 50% of the future equity in the property. Jane retains the current equity at the time of the transaction, as determined by appraised value less outstanding balance.
Jon has never owned real property. He will be taking the mortgage out for the balance of the existing loan, will be added to the property deed, and will pay 50% of all principle and interest payments, property taxes, etc.
Can this transaction possibly qualify as a new homebuyer purchase?
Here are some of my thoughts:
IRS notice 2009-12 provides some guidance under Section 36(b)(1)(C) for allocating the credit between non married taxpayers.
Jon should meet the definition of first time home buyer under 36(c)(3): "any individual (and if married, the individuals spouse) [Jon is not married to Jane] who has not had an ownership interest in any principal residence."
36(c)(3) defines purchase as any acquisition, but only if (i) the tax payer did not acquire the property from a related person [check], and (ii) the taxpayers basis in the property is not determined, in whole or in part, by reference to the adjusted basis of the property in the hands of the person from whom the taxpayer acquired the property.
Jon has had an acquisition, that was financed with third party debt.
36(c)(3)(ii) would instantly disqualify Jon if Jane gifted her interest in the property to Jon, i.e. if she simply signed the deeds over to Jon. Notice 2009-12 provides some examples that reinforce this.
Should Jon's transaction be considered a gift? He isn't receiving existing equity. He is incurring economic risk, by borrowing against the property, and in return has a stake in future equity.
I think this one has a lot of different interesting variables. Any thoughts or brainstorming would really be appreciated. Thanks!
An unmarried individual, Jon, has offered to refinance his girlfriends house, Jane, in exchange for 50% of the future equity in the property. Jane retains the current equity at the time of the transaction, as determined by appraised value less outstanding balance.
Jon has never owned real property. He will be taking the mortgage out for the balance of the existing loan, will be added to the property deed, and will pay 50% of all principle and interest payments, property taxes, etc.
Can this transaction possibly qualify as a new homebuyer purchase?
Here are some of my thoughts:
IRS notice 2009-12 provides some guidance under Section 36(b)(1)(C) for allocating the credit between non married taxpayers.
Jon should meet the definition of first time home buyer under 36(c)(3): "any individual (and if married, the individuals spouse) [Jon is not married to Jane] who has not had an ownership interest in any principal residence."
36(c)(3) defines purchase as any acquisition, but only if (i) the tax payer did not acquire the property from a related person [check], and (ii) the taxpayers basis in the property is not determined, in whole or in part, by reference to the adjusted basis of the property in the hands of the person from whom the taxpayer acquired the property.
Jon has had an acquisition, that was financed with third party debt.
36(c)(3)(ii) would instantly disqualify Jon if Jane gifted her interest in the property to Jon, i.e. if she simply signed the deeds over to Jon. Notice 2009-12 provides some examples that reinforce this.
Should Jon's transaction be considered a gift? He isn't receiving existing equity. He is incurring economic risk, by borrowing against the property, and in return has a stake in future equity.
I think this one has a lot of different interesting variables. Any thoughts or brainstorming would really be appreciated. Thanks!