MLR

Actual purchase necessary to claim first-time homebuyer credit

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A Florida woman was denied a first-time homebuyer credit of $7,500 because the U.S. Tax Court determined that she had never actually purchased the home.

On Jan. 22, 2007, Ada Mae Pittman entered into a lease contract with an option to buy with James Piotrowski Jr.

Pittman was required to meet certain conditions to exercise the option to purchase the house. She was required to:

  • Close on the purchase of the home by Jan. 31, 2008
  • Pay a $1,250 option fee

Pay an additional $150 per month, which would be applied against the purchase price of the home if the option were exercised

Pittman paid the $1,250 option fee and made the $150 per month payments. However, she did not exercise the right to purchase the house by Jan. 31, 2008, because she was unable to obtain the financing needed to close the purchase. No sales documents were ever prepared.

When Pittman timely filed her 2008 federal income tax return, she claimed the $7,500 first-time homebuyer credit. The IRS subsequently sent her a letter of deficiency disallowing the credit.

Generally, under Internal Revenue Code Section 36, a transfer is complete upon the earlier of the transfer of title or the shift of the benefits and burdens of ownership. An option to purchase a home in Florida does not give the person with the option an equitable interest in realty until the option is exercised.

IRC Section 36 is quite clear. A taxpayer must actually acquire a property to claim the first-time homebuyer credit.

Pittman did not provide any documentation substantiating her purchase of the residence. In addition, she never exercised the option to purchase. Therefore, Pittman is not entitled to the claimed first-time homebuyer credit (Ada Mae Pittman v. Commissioner, T.C. Memo 2015-44, March 16, 2015).