Co-signer's daughter can get homebuyer tax credit

• Don Taylor, Ph.D., CFA, CFP
• On 6:00 am EDT, Wednesday October 28, 2009

Dear Dr. Don,
I want to give my 18-year-old daughter a home that has a loan balance of $50,000. The home is worth about $110,000, which means there's about $60,000 in equity. She has a good job and could afford the house payment, but she has no credit at all. How can she get a home loan? It would be awesome for her to take advantage of the tax credit.
-- JW

Dear JW,
You have a lot of things going on that will have to get sorted through to make this work. To qualify for the first-time homebuyer tax credit, your daughter would have to close on the home by Nov. 30. That's going to be very difficult at this late stage. However, there's been some talk that Congress may extend the program. Either way, to get the transaction done as quickly as possible, you need to work with a real estate attorney, a lender and a tax professional.

From your letter, I gather you want to gift your daughter the home, but want her to get a loan to replace the loan you have on the property. If you're worried about her being able to qualify for a loan because she has no credit history, you could consider co-signing the loan with her on the home.

The following is a scenario described by the Internal Revenue Service in its Web publication "First-Time Homebuyer Credit: Scenarios" that could allow your daughter to secure funding with you but still qualify for the tax credit:

S2. Taxpayer A is a single first-time homebuyer. Taxpayer B (parent) cosigns for A and does not qualify. Both names are on the mortgage. Can Taxpayer A claim the credit and, if so, how much?

A. Yes. Taxpayer B is not a first-time homebuyer and cannot claim any portion of the credit, but A may claim the entire credit ($7,500 for purchase in 2008; $8,000 for purchase in 2009), if the home was purchased as Taxpayer A's primary residence.

Your co-signing the note may not put you in the financial position you were hoping for, but it will allow her to build a credit history. Down the road, she can refinance and retitle the property to complete the gift and take you off the loan.

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