First Time Home Buyer Credit Issue!?

Question

Bought a house in April and submitted the forms for the $8000 credit.  Received certified mail from IRS yesterday saying it couldn't be granted because I've claimed mortgage interest on my tax returns in the past.  
Here's the deal.  3 years ago I attempted to take out a loan to get myself out of debt.  I had shaky credit and wanted to pay off credit cards... the bank couldn't grant me the credit and suggested my dad co-sign for me.  Brought dad to the bank, and banker suggested a Home Equity Line of credit against the house my mom and dad own.  Dad took out a $20k equity loan ( I used 8k and paid him back) and I was named on the loan/credit card.  At the end of each year I received the tax form showing how much interest was paid and included it with my tax returns, of course trying to get the best possible return.  I cleaned up my credit, paid my dad back, and was able to buy the house on my own (Go me!) I never owned my parent's house, never was named on a deed, or the first or second mortgages they have had... only on this line of credit.  Does that make me ineligible?  :(  How should I approach this with the IRS??

Steve D · Accepted Answer

Basically, you are going to have to file an amended tax return for the year you took the mortgage deduction (it was not yours to take), pay back the tax due plus penalties and interest and then re-file/appeal the decision on the $8,000 tax credit.

Just so you know, there are 4 qualifications for taking the deduction. Number 4 (which must be met) is:
The mortgage is a secured debt on a qualified home in which you have an ownership interest. “Secured debt” and “qualified home” are explained later.

Since you did not have an ownership interest (which would have made you ineligible for the tax credit), you failed this test and as such, failed the test for taking the deduction.

lightupthesky25 · Answer

I'm not sure if it makes you ineligible. However, I would certainly contact the IRS and ask. They may just want you to prove that you've never actually been a homeowner. If you can show proof that you were not on a mortgage loan or the deed, and possibly show proof that your parents have been the ones paying the mortgage for the past three years (copies of checks or bank drafts would suffice) they may allow you to take the credit.

The IRS is probably assuming that since you took out a HELOC that you took it out against your own home, rather than someone else's.

Kini · Answer

Sure, because you have owned a home before. Your name and your Dad's were on the home loan documents for his house.  Your father took out a home loan. Why did you co-sign the loan? You also included the interest on your tax return. You are not considered a first time buyer.

Sharon T · Answer

Steve is correct.  You were not entitled to deduct the interest on the loan on your parents' home so you must correct those returns (2007, 2008 and 2009 if applicable).  Then you can proceed with your tax credit claim.

Landlord · Answer

You were committing income tax fraud during those years you illegally claimed the mortgage interest.   You better hope you are not audited in the next 7, you could easily end up in federal prison.     Personally I would not try to explain how wrong they are, that their records are incorrect because you are a criminal.    They are not going to simply look the other way regarding your fraud and give you the credit.

Anonymous · Answer

Actually they have a points on what they've mentioned above. I believe your best option right now is to consult it with your lawyer to discuss further your possible options with regards to LAW validity or know your rights as first time home owner. Try to visit this URL below for more HELPs :

http://www.first-time-home-buyer-solutions.com/

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First Time Home Buyer Credit Issue!?

6 Answers