Hi All,
I just went to the IRS website and they said that you can not apply for the $8000 first time home buyer credit if you are buying on a contract for deed. I know many on here had said differently, however that appears to not be the case. Here is the link:
http://www.irs.gov/newsroom/article/0,,id=206291,00.html
Tim
PS- You are going to want to copy and paste the link and go to question 9.
It says generally. It says no because its not a completed sale. So can you explain why its attainable on a regular mortgage thats not a completed sale either? This is a real vague area and needs to be clarified. Herbster
Thanks for the link. I think this creates some conflict in the tax code. As far as the seller is concerned, a contract for deed is a taxable event and the sale is treated as an installment sale.
If I extrapolate the buyer rule here that there is no completed sale, then there should not be any tax consequence for the seller until the contract is fullfilled.
So perhaps after he gets the deed, then he can apply for the credit?
If you apply the rule tjrockford found at the IRS website, then the contract for deed buyer will have to be on title before Dec 1, 2009 to qualify for the tax credit.
I have written the IRS challenging their position based on a conflict in the tax code. Not sure anything will change, but you never know. The IRS will probably wake up and change their position as soon as a few contract for deed sellers start filing amended tax returns to get a refund of the capital gains taxes they should not have had to pay since they did not have a completed sale.
You can most certainly claim a contract for deed as a legitimate sale for determining the First Time Homebuyer Credit for 2008 and 2009 purchases.
All that’s required is some due diligence by your tax attorney / CPA to ensure the local law deems a contract for deed as a legitimate sale. In most states, it does! Do not bother researching through IRS.gov or contacting IRS agents. They will do nothing but err on the conservative side and offer you a hearty “no”.
With proper structuring with the contract, as well as proper reporting on the 2008 or 2009 tax return, you’ll be setting yourself up to earn the credit.
Now, this is not to say the IRS won’t challenge it. As I mentioned before, the IRS’ stance is a firm “no” when directly prompted. As we all know, the IRS’ position is that of an enforcer, not necessarily the interpreter of the law. Just because a police officer issues you a ticket, doesn’t mean you can’t contest it. At the end of the day, it’s the courts that decide the outcome. Be sure you have the case law to back up your position!
tjrockford,
The IRS has revised their opinion. A contract for deed does qualify for the tax credit. Here is what is now posted on the IRS website.
Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer’s payment obligations?
A. If the taxpayer obtains the “benefits and burdens” of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)