New Homebuyer Credit

[RST]

I do not see a clear answer to my client's situation. My clients escrow closed May 19th on agreement to have their home built on land owned by the builder. They did not occupy the property until the day after Thanksgiving. I believe there is a difference of the "purchase date" if a home is being built on land you already own then the "purchase date is when you occupy but if you "purchase a home to be built on a lot" is the purchase date the closing date? Does the move in date have any significance in this situation?

[spanel]

I do not see a clear answer to my client's situation. My clients escrow closed May 19th on agreement to have their home built on land owned by the builder. They did not occupy the property until the day after Thanksgiving. I believe there is a difference of the "purchase date" if a home is being built on land you already own then the "purchase date is when you occupy but if you "purchase a home to be built on a lot" is the purchase date the closing date? Does the move in date have any significance in this situation?

I think they dont qualify for LOTS of reasons..

Had to be Moved in by 9/30/10.
Had to be in a binding contract by 4/30/10.
Im pretty sure a built has had to be built or contracted to be built by 6/30/10 anyway.

Chris

[Koss]

New Construction

You may need to ask a few more questions, or take a look at the purchase contract. But unfortunately, it doesn't sound like your client qualifies.

First, you need to clarify what you mean by "escrow closed." It probably doesn't make a difference; a closing is a closing is a closing, in most cases. Title companies talk about roundtable closing or escrow closing, but the distinction is largely irrelevant when it comes to tax law.

Also: You wrote that your client had "an agreement to have their home built on land owned by the builder." But then you also wrote that the "home is being built on land you already own." This only adds to the confusion.

They did not enter into an agreement to have a home built on "land owned by the builder." No one would have a house a built on land that they did not own. This actually happens in commercial real estate deals, where you can lease the land and build on it. You end up with a situation where one person owns the land and someone else owns the building. But that doesn't happen with single-family homes; it's unheard of.

Your client bought the land from the builder, and contracted for the construction of a home on that parcel of land, in a single transaction. This is certainly important from a legal standpoint, because if for some reason the builder fails to construct the home, your client still owns the land.

Unfortunately, I don't think any of this has any impact on the tax law with respect to the homebuyer credit. The date of occupancy is the only thing that matters.

Here's the relevant section of the FAQ from the IRS website:

Home Construction

Q. I plan to build a home and occupy it in 2009 or early 2010. Can I claim the first-time homebuyer credit now and use the funds toward the down payment or other ongoing construction costs?

A. No. To qualify for the first time home buyer credit, the residence must be purchased. By statute, a residence which is constructed by the taxpayer is treated as purchased on the date the taxpayer first occupies the residence. (05/06/09)

Q. I entered into a written home construction contract with a homebuilder before May 1, 2010, and the contract provides for completion of the home before July 1, 2010. Can I take the credit for the construction costs?

A. Your home construction contract qualifies as a binding contract, entered into on or before April 30, 2010, to close on the purchase of a principal residence on or before June 30, 2010. If you occupy the home on or before June 30, 2010, and meet the other requirements, you can take the credit.

Q. I entered into a written home construction contract with a homebuilder before May 1, 2010, and the contract provides for completion of the home before September 1, 2010. Can I take the credit for the construction costs?

A. Your home construction contract does not qualify as a binding contract to close on the purchase of a principal residence on or before June 30, 2010. Therefore, you do not qualify for the two-month extension of the deadline for completing the purchase in the case of a binding contract. However, if you occupy the home on or before April 30, 2010, and meet the other requirements, you can take the credit. If you do not occupy the home on or before April 30, 2010, you cannot take the credit.

In all three scenarios, it is clear that the taxpayer must occupy the home, either by April 30, 2010, or, in some cases, by June 30, 2010. Your client didn't occupy the house until November, so they don't qualify.

The point you tried to make in your post is that when the builder began construction, your client already owned the land. I agree that this is what happened. Unfortunately, it doesn't seem to make a difference.

BMK