IRS Restriction That Could Prevent Getting Home Buyer Credit

Here is a case where, even though the IRS documentation did not state it directly, the real rule of the law makes an explicit statement, and therefore the Code is where the final rules are taken from. In this particular case, there is a situation where the home buyer credit is not available: if the home is purchased from a parent or another close relative (and vice versa). And the taxpayer who relied only on an IRS publication found out the hard way that the Internal Revenue Code is the final word on the subject.


There was a recent Tax Court case (Nievinski, TC Summary Opinion 2011-10) that challenged the limitation, and the Tax Court ruled in favor of the Service.  The argument was that, in a particular document, IRS Publication 4819 “Important Information About the First-Time Homebuyer Credit”, there was no express explanation of this limitation.


Unfortunately for the taxpayer in this case, the Code section 36(c)(3) does expressly prohibit the credit for such a transaction between related persons, and related persons definitely does include parents and other ancestors.


The same would be true in reverse, the parents could not have purchased the home from a child and claim the credit.


In addition, this ban on claiming the credit also applies to heirs buying a home from an estate, as well as to residences that were purchased after November 6, 2009 from an in-law.


The lesson here is that total reliance on IRS publications will not keep you out of dutch if the Code provides a counter or more complete explanation of the rules and regulations.  Make sure that you get the complete Code explanation – especially in the case of a move that is a little “on the edge” and seems like it may be too good to be true.


 

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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