A home in which a taxpayer inherited an ownership interest was his principal residence, even though he lived there only a few months, the Tax Court holds.
The Tax Court held that a home inherited by a taxpayer disqualified him from a first-time homebuyer credit for a new residence. The fact that the taxpayer did not intend for the inherited property to be his permanent residence was not controlling because he had no other residence when he lived there.
Facts: In April 2006, Alexander Goralski, a CPA, moved out of his New York City apartment and into the home of his late mother in Elmsford, N.Y., to assist his sister with her grieving and recovery from the death of their mother. Goralski slept at the home and used it as his home address for IRS filings and other mailings. In February 2007, their mother’s estate deeded the Elmsford home to Goralski and his sister as tenants-in-common.
By May 2007, Goralski moved into an apartment in Yonkers, N.Y., and in April 2008 purchased a condominium in Yonkers and moved there. He and his wife claimed a first-time homebuyer credit on their joint 2008 return in connection with the Yonkers condominium. The IRS disallowed the credit and determined a deficiency and accuracy-related penalty. Goralski petitioned the Tax Court for a redetermination.
Issues: For years in which the first-time homebuyer credit was available, a taxpayer and, if married, the individual’s spouse, could not have held a present ownership interest in another principal residence during the three-year period ending on the date of purchase of the qualifying principal residence (Sec. 36(c)(1)). Sec. 36(c)(2) provides that “principal residence” has the same meaning as in Sec. 121.
A facts-and-circumstances test of Regs. Sec. 1.121-1(b) may determine whether a taxpayer’s residence is principal, particularly, under Regs. Sec. 1.121-1(b)(2), when a taxpayer maintains more than one residence. Goralski asserted that such a test should apply to his case because he did not live at the Elmsford home long, did so only because of his mother’s death, and did not intend to reside there permanently.
Holding: The court rejected Goralski’s argument, citing Soliman, 506 U.S. 168 (1993), in which the Supreme Court determined that in determining “whether a location is ‘the principal place of business’ the commonsense meaning of ‘principal’ suggests that a comparison of locations must be undertaken.”
In view of this, the Tax Court determined that Goralski held an ownership interest in the Elmsford home once it was deeded to him and his sister. At that time, it was his only residence; therefore, it was his primary residence. Thus, Goralski was not entitled to the first-time homebuyer credit when he purchased his condominium, the court held. The court, however, did not sustain accuracy-related penalties, finding that Goralski acted with good faith and had reasonable cause to believe that he was entitled to the credit.
By Raymond C. Speciale, Esq., CPA, associate
professor of accounting and law, Mount St. Mary’s University,