Different type of question

[sanjosetrade]

My husband and I are both retired and live in Southern California. We are awaiting our Chapter 13 discharge which should be coming any day, after 3 and a half long years. Yay! Anyway we would like to buy a mobile home in a retirement community for cash, between $40,000 to $50,000. My brother-in-law has offered to loan us the money and we can put it in our name while we pay him back. That way we can take advantage of the federal tax credit which ends April 30, 2010. Even with paying back the loan and the park rent we will still be saving about $400-$500 over what we are paying now in rent. My question is this: What are the ramifications, if any, of buying a house with cash right after bankruptcy discharge? Will the trustee have a problem with it ?? We don't want to do anything that will have an effect on the discharge. Any help with these questions will be greatly appreciated. Thanks!

[StartingOver08]

Look at the IRS paperwork here http://www.irs.gov/pub/irs-pdf/f5405.pdf
More information: http://www.irs.gov/newsroom/article/...204671,00.html

There are no ramifications of buying after BK. But, I don't know if you can "rent" the lot. I am still looking to see if that is an issue for qualifying for the credit.

Ok. You are fine. Here are the answers:
Q. If a taxpayer purchases a mobile home (manufactured home) with land and qualifies for the credit, is the amount of the credit based on the combined cost of the home and land?

A. Yes. The first-time homebuyer credit is ten percent of the purchase price of a principal residence. The total purchase price (mobile home and land) is used to determine the amount of the first-time homebuyer credit.

Q. Is a taxpayer who purchases a mobile home and places the home on leased land eligible for the first-time homebuyer credit?

A. Yes. A mobile home may qualify as a principal residence and it is not necessary that the taxpayer own the land to qualify for the first-time homebuyer credit.http://www.irs.gov/newsroom/article/...206291,00.html

[BKDefender]

If your brother-in-law is loaning you the money, make sure to have an agreement in writing that describes what the terms of the loan are, including what the monthly payments will be and what happens if you default on the loan. They can be nice terms but it should at least list what rights he has. If he enforces them that's different.

Also, to avoid the IRS from classifying the money as a gift disguised as a loan, you need to ensure that the interest rate is at least the minimum Applicable Federal Rate (AFR at http://www.irs.gov/app/picklist/list/federalRates.html). This avoids the IRS claiming (if you are ever audited) that this money should be classified as income instead.

--William

[sanjosetrade]

Sorry I didn't get back to you sooner!

StartingOver08...Thank you for the link and the answer. Told me exactly what I needed to know!

BKDefender...Thank you also for your response! I have a couple more questions, if you wouldn't mind answering. Brother-in law offered the money as a gift to give us a fresh start but we were hesitant. What would be the difference? It shouldn't count against us as income, right? We just dont want to cause any problems, but would like to put the house in our name to take advantage of the tax credit. Another question....We received a letter from the trustee with a refund saying the case was closed, but on 13 network it says "pending completion" although the financial section says
case closed". We also received our paper that says "Discharged" but on Pacer it says "Awaiting Trustee Report" So does that mean we are done or do we have to wait for something else? Hope this makes sense! Thanks for any help!

[BKDefender]

sanjo:
Until the case has been closed, you are still under the jurisdiction of the bankruptcy court. As such, you should take precautions on any large transactions until the case is actually closed. Because there has already been a discharge issued, the court is just waiting for the trustee to issue a final accounting report. You might contact the trustee and find out when he/she intends to issue the final accounting so your case can be officially closed.

The tax credit requires you to have the house under contract by April 30th and the transaction closed & funded by June 30, 2010.

You could sign the purchase agreement on the home to get it under contract by April 30th and if your case is not closed by the time June 30th gets near, have your brother-in-law do it as a formal loan with mortgage payments, a lien/trust deed, and other formalities. Then when your BK case is closed, your brother-in-law could forgive the loan and remove his lien/mortgage and make sure to file the tax return gift schedule so that money is taken out of his lifetime allowed non-taxable gift limit. It's a bit more work to do it that way, but it will avoid the trustee seeing a huge gift inside an open bankruptcy case.

--William