Can a home buyer qualify for the first-time homebuyer tax credit if they are buying on a land contract (aka agreement for sale, contract for deed)?
When a home buyer purchases a home with seller financing, through an installment sale, using an agreement for sale (also known as a "contract for deed" or "land contract"), the seller generally retains legal title, while the buyer gets "equitable title". The buyer has equitable title because the agreement for sale gives them a claim on the title, and the agreement for sale or equivalent is generally recorded in the public record, to prove that the buyer has equitable title. But the buyer doesn't get full legal title until they pay off the loan to the seller.
There was a big question about whether the buyer would qualify for the first-time homebuyer tax credit, since they weren't getting legal title at the time of the purchase. I called the IRS and asked them about it, around April 2009, and the person I talked to seemed pretty clueless, but her opinion was that the buyer would probably NOT be eligible for the tax credit. But a lot of people must have put that same question to the IRS, because on July 2, 2009, they updated the FAQs regarding the tax credit.
And good news, the answer is YES, the homebuyer does qualify for the tax credit, as long as the agreement meets certain requirements. Here's what they said exactly (from this link on the IRS site):
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)
There was a big question about whether the buyer would qualify for the first-time homebuyer tax credit, since they weren't getting legal title at the time of the purchase. I called the IRS and asked them about it, around April 2009, and the person I talked to seemed pretty clueless, but her opinion was that the buyer would probably NOT be eligible for the tax credit. But a lot of people must have put that same question to the IRS, because on July 2, 2009, they updated the FAQs regarding the tax credit.
And good news, the answer is YES, the homebuyer does qualify for the tax credit, as long as the agreement meets certain requirements. Here's what they said exactly (from this link on the IRS site):
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)
Posted at
2:42 PM
4 Comments:
tax credit $8,000 question. Say a Dad buys a home with his unmarried daughter(a first-time homebuyer)
can the daughter get the full $8000 tax credit federal? The Dad has owned homes previously and currently.
co-borrowers and joint tenants when they vest title.
The IRS FAQ pages here and here do not seem to address the question directly. But this site says "unmarried joint purchasers may allocate the credit amount to any buyer who qualifies as a first-time buyer, such as may occur if a parent jointly purchases a home with a son or daughter."
So, "allocate" could mean bad news. If the daughter/first time buyer will be paying 1/4th of the mortgage, then is she only entitled to get a $2,000 credit?
I've read the same instructions that you mention, but it's still unclear.
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