First time home buyer tax credit

[mwarney]

Here is a question... Would a duplex qualify for the $7,500 tax credit? I have a young couple buying their first home which has a one bedroom apartment in the back. HR 3221 defines "principal residence" as "having the same meaning as when used in section 121 (Exclusion of gain from sale of principal residence). I was hoping the new tax credit form 5405 might provide some insight but unfortunately it has not been printed yet. Should I allocate the purchase price between the part they are living in and the part that will be rented? It seems there is no clear definition of "principal residence."

Thanks

[BOB W]

Are you sure this home is a Duplex? Or is it just a home that is considered a "Mother/Daughter" set up?

[Kram BergGold]

Split purchase price

When you buy a two family and live in one part you have effectivley bought two properties. I believe the full $7500 credit can be applied to the portion of the house which is the primary residence.

[solomon]

Form 5405 draft has been available for quite sometime.

[Bees Knees]

TheTaxAuthority Update Service says:

The credit is equal to the lesser of $7,500 ($3,750 MFS) or 10% of the purchase price of the principal residence.

As you pointed out, the definition of a principal residence is the same as what is used in Section 121, meaning only half of the duplex qualifies as a principal residence. So the above limitation can only apply to the portion of the purchase price allocated to the principal residence side of the duplex.

Example: Duplex cost is $140,000. The half used as a principal residence costs $70,000. The credit is the lesser of $7,500, or 10% of $70,000 = $7,000.

[mwarney]

TheTaxAuthority Update Service says:



As you pointed out, the definition of a principal residence is the same as what is used in Section 121, meaning only half of the duplex qualifies as a principal residence. So the above limitation can only apply to the portion of the purchase price allocated to the principal residence side of the duplex.

Example: Duplex cost is $140,000. The half used as a principal residence costs $70,000. The credit is the lesser of $7,500, or 10% of $70,000 = $7,000.

My thoughts exactly.... and without any specific language to the contrary, that is how I plan to handle it.

[mwarney]

Form 5405 draft has been available for quite sometime.

any idea where I might find it?

[S T]

Draft

http://www.irs.gov/pub/irs-dft/f5405--dft.pdf

Sandy

[mwarney]

http://www.irs.gov/pub/irs-dft/f5405--dft.pdf

Sandy

Thanks Sandy!