- Days left

My preschooler is now a homeowner, and other tales of fraud

Homebuyers did not have to truly be first-timers in order to qualify for the "first time homebuyer" tax credit, expiring Nov. 30; they only had to meet the limitation of not having owned a primary residence for the past three years, with income limits of $75,000 for individuals and $150,000 for married taxpayers.

According to the Treasury Department, however, 4-year-olds (and other individuals incapable of legally signing a purchase agreement) don't count.

In an Internal Audit Report meant to assess the 2008 filings in anticipation of a surge in claims for the 2009 tax season, as many as 90,000 claims were determined to be potentially ineligible, and 528 of those were to homebuyers under 18.

The federal tax credit for first-time homebuyers is $8,000.


Out of 1.1 million total claims made by July 17, 2009, this is certainly not an epidemic; but it's a lot of money, as much as $700 million paid out to taxpayers who didn't deserve the credit.

Among the questionable tax credits were those for individuals who hadn't yet closed the sale of their home (more than 19,000) and those who hadn't filed the correct form, or had income in excess of the eligibility requirements.

By far the largest area of potential fraud was predictable: taxpayers who had owned a primary residence in the past three years, 73,799 of 'em. Most of them had claimed mortgage interest, homeowners insurance, or real estate taxes on their past three years' tax filings, and some had even claimed mortgage points, meaning they had purchased a home or had it refinanced within the period.

But most entertaining (and minor in quantity) were the first-time homebuyer credits claimed by children. There were 582 claimants under the age of 18, old enough to pay taxes but not old enough, as the report says dryly, to buy a home.

"Contract law generally exempts children under the age of 18 from being bound by the terms of a contract. Therefore, it is unlikely that these taxpayers would have entered into an arms-length transaction for the purchase of a home," the report states.

The youngest "taxpayers" receiving a tax credit were 4. In other words, more than one family decided to claim a home "purchased" by their preschooler.

Please prosecute these parents.

A footnote to the under-18 section of the report was that 165 of the children who claimed an income tax credit were making in excess of the income requirements, in other words, over $75,000 (I'm just going to assume than none of them were married, even though this may be a bad assumption if their babysitting charges are claiming, too). At least we know they could afford to buy a home!

Though the report is only meant to highlight the automatic screening that should be put into place for the 2009 filing season -- along with a recommendation that the IRS require homeowners to submit proof of the purchase of a home with their return (something that was not required in the 2008 tax season) -- it exposes a subset of taxpayers who are so unethical and, well, ruthless, that they'd eagerly file tax returns claiming a number of lies to reduce their tax exposure.

I'd guess a minority of the 165 taxpayers who claimed a homeowner's credit with income in excess of $75,000 actually earned that money in a job; after all, just how many teenagers are there who make more than an average professional's salary?

As for the normal, law-abiding taxpayer seeking to claim the credit, the new screening recommendations will mean you may be required to submit more documentation. And if you've claimed any homeowner-related tax credits in the past three years, you'll likely be screened out of the system.

Increase your money and finance knowledge from home

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

TurboTax Articles

Are You Exempt From Health Care Coverage?

The Affordable Care Act, or Obamacare, is an individual mandate that requires all eligible Americans to have some form of basic health coverage by 2014. Those without insurance will receive a penalty when they file their tax returns ? that is, unless they have an exemption. TurboTax's Exemption Check can help you find out whether or not you qualify for an exemption.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

Mortgage Refinance Tax Deductions

When refinancing a mortgage to get a lower interest rate or obtain more favorable loan terms, you're really just taking out a new loan and using the money to pay off your existing home loan. In general, the same tax deductions are available when you're refinancing a mortgage as when you're taking out a mortgage to buy a home.

How to Determine if You Have Minimum Essential Coverage (MEC)

The Affordable Care Act, also known as Obamacare, requires most Americans to have health insurance that meets a government standard known as "minimum essential coverage," or MEC. Whether your insurance qualifies as MEC depends not on the plan itself, but on how you obtained your coverage.

Rental Property Deductions You Can Take at Tax Time

Rental property often offers larger deductions and tax benefits than most investments. Many of these are overlooked by landlords at tax time. This can make a difference in making a profit or losing money on your real estate venture. If you own a rental property, the IRS allows you to deduct expenses you pay for the upkeep and maintenance of the property, conserving and managing the property, and other expenses deemed necessary and associated with property rental.

Add a Comment

*0 / 3000 Character Maximum