Discussion Archives:First time homebuyer

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Discussion Forum Index --> Advanced Tax Questions --> First time homebuyer


Discussion Forum Index --> Tax Questions --> First time homebuyer

Sissy (talk|edits) said:

2 May 2009
My client is a contractor who is building a house for his son. The son has never owned a home. The mortgage for the house will be in the son's name. Is the fact that the dad is building the house going to make the son inelligible for the first time homebuyer's credit due to related party rules?

TAXBILLY (talk|edits) said:

3 May 2009
To which rule are you referring?

1)Auto expenses of related employees are not exempted from the substantiation requirements merely because of an accounting to the employer. [Temp. Treas. Reg. § 1.274-5T(f)(5)(ii)] 2)Anti-Churning rules. Property owned or used at any time by the taxpayer or related party, except for residential rental property or non-residential real property. See IRC § 168(f)(5)(B) for additional details. 3)Deductions for rentals between related parties or controlled entities are not allowed in excess of a reasonable rental. (Social Psychological Services, Inc. v. Commissioner, T.C. Memo. 1993-565) 4)Installment sales. In general, disposition of property within two years after a sale between related parties triggers recognition of gain by the initial seller based on the seller’s gross profit ratio to the extent the amount realized from the second disposition exceeds actual payments made under the installment sale. [IRC § 453(e)] 5)Imputed interest rate for members of the same family. An installment sale of land qualifies for imputed interest of no more than six percent compounded semi-annually, for sales or exchanges of land between family members not exceeding $500,000 during any calendar year. [IRC § 483(e)] 6)Acquisition of debt by a person related to the debtor from a person not related to the debtor results in the debtor’s realization of discharge of indebtedness income, measured by the difference between the face value and fair market value of the indebtedness on the acquisition date. [IRC § 108(e)(4)] 7)Cash basis taxpayer can deduct an expense if it is paid to related accrual basis taxpayer, who was required to include it as income. This is also true for the reverse situation.(IRC § 267) 8)A non-arms-length transaction between related taxpayers is subject to reallocation in order to clearly reflect income and expenses. (IRC § 482) 9)Election out of IRC § 263A requires that the Alternative Depreciation System, per IRC § 168(g)(2), must be applied to all property used predominantly in any farming business of the taxpayer or related person and placed in service in any taxable year during which the election is in effect. [Treas. Reg. § 1.263A-4(d)(4)(ii)] taxbilly

Deback (talk|edits) said:

May 3, 2009
I would guess she is referring to the rule that states the credit is not available if the house was purchased from a related person. Since the father only built the home and didn't actually own it (as far as using the home for any reason after he built it), I'd say the son is eligible for the credit.

TAXBILLY (talk|edits) said:

3 May 2009
I believe the wording says close relative rather than related person which doesn't make a difference here but I wonder what that means?

I don't see a requirement that says the close relative lived in the house that they are selling to the taxpayer. I don't know specifically what is meant by buying from the close relative in this case because we don't know if the father "built it" as a subcontrator or possibly the taxpayer bought the home from a construction company possibly owned by the father. Questions, questions, questions. taxbilly

Deback (talk|edits) said:

May 3, 2009
The wording in the 5405 instructions is "related person," as I mentioned -- and the instructions specify what is a "related person."


The original question states specifically that the father built the house as a contractor. So, we do know that the father built it as a subcontractor.


Don't know why you have so many questions, questions, questions....

Death&Taxes (talk|edits) said:

3 May 2009
Who owned the land originally? Son or father?

RoyDaleOne (talk|edits) said:

3 May 2009
I would think as long as the father was not in the chain of title the son would be allowed the credit.

Sissy (talk|edits) said:

4 May 2009
Thanks for your input. The dad is a 50% partner in the construction company that is building the house. The dad deeded the lot to the son several years ago as a gift.

Taxman3132 (talk|edits) said:

4 May 2009
i have a client comming in this week who just purchased a house for his 2 son's(still in high school). no mortgage--it looks like the 2 sons will get a 50-50 credit(refundable) on thier returns.
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