Rent vs Buy in Charlotte>Question Details

Shavona Jack…, Home Buyer in South Carolina

Can u use the first time tax credit towards lease to purchase homes and how to make sure you don't get?

Asked by Shavona Jackson, South Carolina Wed Jul 29, 2009

screwed if the homes in pre foreclosure

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Read this frequently asked question about the $8000 stimulus tax credit. I think the last sentence states it pretty well. It sounds like to me you will have to close on a home and have the deed recorded before you can claim the tax credit... in other words a "completed purchase". On a lease to purchase contract you are merely a leaseholder until you move forward and purchase and close on the home. At that point you are considered a homeowner even though the bank still holds the deed of trust until the mortgage is paid off.

How do I claim the tax credit? Do I need to complete a form or application?
Participating in the tax credit program is easy. You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns (line 69 of the 1040 income tax form for 2008 returns). No other applications or forms are required, and no pre-approval is necessary. However, you will want to be sure that you qualify for the credit under the income limits and first-time home buyer tests. Note that you cannot claim the credit on Form 5405 for an intended purchase for some future date; it must be a completed purchase.
Web Reference: http://www.ISellUnion.com
0 votes Thank Flag Link Thu Jul 30, 2009
Hi, let me answer each question separately. If you have the seller sell you the home as owner financing on a land contract vs. a lease to own then I believe that you can take the first time tax credit. With a land contract, its very similar to buying a car and getting a loan in that the bank holds the title until you pay off the note. Similarly when buying an owner financed home with a land contract, the deed is placed in escrow and when you refinance or payoff later on you get full ownership via the deed. However, per the IRS a land contract is considered a sale and if you are responsible for making the payments solely on the debt of that home you are entitled to the tax write off. This is why I'm lead to believe that you could also get the first time homebuyer tax credit. You should call an accountant first though as I wouldn't want to lead you astray. The benefit to the seller of selling on a land contract is that if you don't make good on your promise to pay then they can evict you like a tenant and not have to file the foreclosure. If you are putting a decent amount of money down then the seller should comply with this option.

On your second question, if you put option consideration down and the house goes to foreclosure you can refinance the property before that occurs if you are ready to as long as the debt owed is not larger than what you are purchasing for (and it shouldn't be). I've seen situations where the lease to own buyer cannot obtain financing for a number of years which is essentially a glorified rental. So, if you can't refinance into a new loan by the time a foreclosure happens than you could lose your option consideration. Or, the seller could work with a company like mine to work a short sale and get the debt reduced with the lender so that you can purchase. I hope that this helps. Unfortunately nothing is guaranteed.

Good luck,
Mike Moulton
Bee Home Solutions, Inc.
0 votes Thank Flag Link Wed Jul 29, 2009
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