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Individual with Ownership in Other Property Qualified for First-time Homebuyer Credit.
(Parker Tax Publishing January 2014)

An individual who claimed deductions for mortgage interest and real estate taxes on real property that was not his principal residence was not disqualified from being considered a first-time homebuyer for purposes of the first-time homebuyer credit. Brewer v. Comm'r., T.C. Memo. 2013-295 (12/30/13).

James Brewer, an employee of the IRS, purchased a residential condominium in Staten Island, New York in January 2005. He lived at the property until June 2005 when he moved to New Jersey with his companion. James used a mailbox in New Jersey to receive all his mail, obtained a New Jersey driver's license, and attended church in New Jersey. From 2005 to 2007, his companion's sister lived at the Staten Island property but did not pay rent to James at any time.

In 2008, James and his companion bought a single-family home in New Jersey. His realtor for the sale completed a Form HUD-1, Uniform Settlement Statement, and listed James's Staten Island property as his address. For 2005 and 2006, James filed a New York and a New Jersey part-year resident tax return. For 2007, he filed only a New Jersey state resident tax return and claimed deductions for real estate taxes and mortgage interest in connection with the Staten Island property.

In 2008, James filed a New Jersey state resident tax return. On his federal income tax return, James listed the New Jersey home as his address and claimed a first-time homebuyer credit in connection with his purchase of the property. The IRS disallowed the credit and issued a notice of deficiency.

Code Sec. 36 provided a refundable credit to an individual who was a first-time homebuyer of a principal residence after April 8, 2008, and before May 1, 2010 (or October 1, 2010, for purchasers with a binding contract before May 1, 2010). Under Code Sec. 36(c)(1), a taxpayer was eligible for the first time homebuyer credit on the purchase of a principal residence if: (1) he or she did not have a present ownership interest in a principal residence during the three-year period ending on the date of the purchase of the principal residence for which the first-time homebuyer credit is claimed; or (2) he or she owned and used the same home as his or her principal residence for any five consecutive years during the eight-year period before the date of the purchase. The credit was phased-out for higher income taxpayers.

For purposes of this credit, the term "principal residence" has the same meaning as in Code Sec. 121 (i.e., the provision that allows taxpayers to exclude from gross income gain from the sale of a principal residence, if certain requirements are met). Under Reg. Sec. 1.121-1(b)(2), if a taxpayer alternates living between two properties, using each residence for successive periods of time, the property the taxpayer uses a majority of the time during the year generally is considered the taxpayer's principal residence. In addition to the taxpayer's use of the property, other relevant factors, such as the taxpayer's place of employment and the principal place of abode of family members, may determine the taxpayer's principal residence.

James argued that the Staten Island property stopped being his principal residence when he moved to New Jersey in 2005. Thus, the required three years had passed, since he owned a principal residence.

The IRS contended that James was not a first-time homebuyer since he held an ownership interest in the Staten Island property and used the property as his principal residence.

The Tax Court held that the Staten Island property was not James's principal residence after 2005 and, thus, he qualified as a first-time homebuyer for purposes of the credit. James's credible testimony demonstrated that he moved out of the Staten Island property in 2005. Moreover, the Form HUD-1, completed by the realtor on his behalf, did not indicate James's principal residence as it only required an address of the borrower, not his home address. James's 2007 and 2008 returns also indicated that he lived solely in New Jersey. Finally, the court said that the deductions for mortgage interest and real estate taxes on the Staten Island property were not conclusive as to James's principal residence because James was entitled to claim the deductions even though the property was not his principal residence.

For a discussion of the first-time homebuyer credit, see Parker Tax ΒΆ260,130. (Staff Contributor Parker Tax Publishing)

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