Tax credit confusion reigns.
You’d think in the two weeks since the first-time home buyer tax credit was extended through June 30, 2010 and expanded to include many trade-up buyers, that the rules would be crystal clear.
But no. It turns out that many home buyers, sellers, agents, and so-called experts are confused by some of the details.
First: A mea culpa. I said recently that trade-up buyers could take advantage of the tax credit if they closed on November 6, 2009 or after. According to Mark Luscombe, principal tax analyst with tax information publisher CCH, trade up home buyers must close after November 6 to qualify. (Effectively, this would apply to closings on November 9 or later, since November 6 was a Friday and few can close on a home over a weekend.)
It’s easy to be confused when different parts of the tax credit have different effective dates.
I also received several emails this week from real estate agents and owners of mobile homes wondering how the IRS treats mobile homeowners as home buyers. In two of these cases, the mobile homeowner rented the land on which the mobile home sits. Are they first-time buyers (and eligible for the $8,000 tax credit) or trade-up buyers (and eligible for the $6,500 tax credit)?
According to Luscombe, “a principal residence for purposes of the home buyer credit is the same as a principal residence for purposes of the exclusion on sale of a principal residence.”
“Under the IRS regulations for exclusion on sale of a principal residence, a residence may include a houseboat or a house trailer. There is no requirement that the residence not be moveable or that the land under the residence also be owned,” Luscombe added in an email.
He also noted that the only stated restriction is that “the residence [may] not include any personal property that is not a fixture under local law. Under this language, it would appear that a mobile home that is moveable and where the land is only rented could still qualify as a principal residence for purposes of the homebuyer credit.”
I asked how the IRS would treat a mobile home that had on one rented lot for two years and then moved to a different lot.
Luscombe said that as long as the mobile home (not an RV) remained the principal residence, it shouldn’t matter that the home changed locations. However, he continued, “as a practical matter, it is possible that the IRS computers would kick out the claim of the credit for examination based on [the fact] no one address was reported on the return for the taxpayer for a consecutive five out of the last eight years.”
In other words, if you own a mobile home but move around a lot, you may not at first glance meet the IRS requirement that you lived in your primary home for five consecutive years out of the past eight. In this case, the IRS computers might kick out your return, but you would have the opportunity to present your case in a written letter or an audit.
The IRS even has a helpful question and answer section on its website dealing with these questions. I have copied a few of the questions and answers here:
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.
Q. Can a taxpayer who purchases a travel trailer qualify for the credit?
A. A travel trailer that is affixed to land may qualify as a principal residence.
Q. Can an individual who has lived in an RV qualify for the credit?
A. For purposes of the first-time homebuyer credit, an RV with a built-in motor is personal property that is not affixed to land and does not qualify as a principal residence. Accordingly, someone who has owned and lived in an RV within the past three years may still qualify as a first-time homebuyer.
For more details, go to IRS.gov and search for “first time home buyer tax credit.”