In 1995, my mother and I bought a house jointly. In 2001, she transferred it into a living trust with her will's stating I still had the right to inherit the house. I continued to pay mortgage interest and take it off my taxes, along with the property taxes, because the mortgagee still had us as joint owners.
Now my mother is about to go onto Medicaid, and we discovered this error. So, in addition to losing all my equity in the house (half of $150,000), am I liable for taking off the expenses?
Furthermore, am I still eligible to take the $8000 credit as a first time buyer, given I ceased being an owner in 2001? We discovered this error only this week.
Estate Planning Attorney
I strongly urge you to contact a tax attorney in your area and your mother may wish to contact an elder law attorney. There are many facts in your question that need to be fleshed out. You say that you and your mother owned the property jointly but that she transferred the property to the trust. Yet she can't have transferred your interest in the property, so do you still own part of it? An attorney can help to determine that, which will guide the answers to your other questions.
There are a lot of issues in this question, and a number of facts are lacking. When the property was transferred to your mother gift tax issues may have been triggered. If you are not a trustor and trustee of the trust, you should not be taking the tax deductions (another issue). Since you have been taking the interest and taxes off on your return, the IRS will question whether you qualify for the first time homebuyer credit. Finally, the transfer to the trust needs to be looked at closely to see if it was a valid transfer. You need to seek a qualified tax attorney and possibly a real estate attorney.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this response provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this response cannot be used to eliminate penalties with the IRS or any other governmental agency.
First, as the other attorneys have pointed out, you are not entitled to take the interest and taxes related to the home if you are not the owner. As a result, those deductions claimed on your tax return are erroneous.
As to the first time home credit, are you asking about transferring the property to you from the trust? If so are you going to pay the trust the full market value for the property? If this is the case, then this scenario may not fit into the credit rules. Without all the facts, it is impossible to give you an answer. This question would require researching the details of the new law, since your situation is quite unique. You really need to retain experienced tax counsel to resolve these difficult issues.
Hope this helps.
Mr. Fromm is licensed to practice law in PA with offices in Philadelphia. He can be reached at 215-735-2336. He is featured as a 5Star Wealth Manager in the current issue of Philadelphia Magazine, November 2009 on page 123. The response herein is not legal advice and does not create an attorney/ client relationship. The response is only in the form of legal education and is intended to only provide general information about the matter within the question. Oftentimes the question does not include significant and important facts and timelines that if known could significantly change the reply or make such reply unsuitable. Mr. Fromm strongly advises the questioner to confer with an attorney in their state in order to ensure proper advice is received.
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