Dear Tax Talk,
My wife and I have an LLC (two members). We buy and hold real estate, sell some homes on land contract, etc.
A few years ago my wife and I moved into one of the homes that we had bought to “flip” and we have never moved it out of the LLC, because we keep thinking that we are still going to sell it.
We have never mortgaged the home (it is simply on a one-year note that we renew each year).
My question is: Since we have not lived in a home that we have owned in our own name for over three years, and my understanding of the IRS rules is that in order to qualify for the “capital gain” rules, the home would have to be held in a single member LLC (which it isn’t), would we qualify to purchase the home from the LLC, and receive the $8,000 homebuyer tax credit?
The first-time homebuyer credit of up to $8,000 is set to expire at the end of April unless the buyer enters into a binding contract by then and closes by June 30, 2010. Apart from the time deadline, the buyer and the property have to meet various criteria. Taxpayers who have not owned another principal residence at any time during the three years prior to the date of purchase are considered first-time homebuyers. After Nov. 6, 2009, the purchase price of the home cannot exceed $800,000.
After Nov. 6, 2009, your modified adjusted gross income, or AGI, must be less than $145,000 ($245,000 for married couples filing jointly). Earlier purchases had lower income thresholds. The property cannot be acquired by gift or inheritance. The property cannot be acquired from a related person. With respect to your situation, this last limitation would preclude the property from qualifying for the homebuyer tax credit. That is, you could not buy it from the LLC to qualify for the credit.
Even if you’re not a first-time homebuyer, you can still qualify for a tax credit. If you’ve owned a home for more than five years, you may qualify for a credit of up to $6,500 when you purchase a new main home. The credit has the time limits discussed earlier and only for purchases after Nov. 6, 2009. Form 5405 is used to apply for the credit.
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.