The Tax Court held that a married couple’s old house, which they continued to use while trying to sell it, qualified as a principal residence, and therefore they did not meet the timing requirement to qualify for an $8,000 first-time homebuyer credit when they purchased a new house ( Foster, 138 T.C. No. 4 (2012)).
The Fosters put their former residence on the market in February 2006, and they began spending most of their time at Mrs. Foster’s parents’ house. The sale of the old house was finalized on June 6, 2007. They purchased a new house on July 28, 2009.
The Fosters claimed an $8,000 first-time homebuyer credit on their 2008 tax return, which the IRS denied.
Under Sec. 36(c), a “first-time homebuyer” was defined as any individual who had had no present ownership interest in a principal residence for three years prior to the date of purchase of the principal residence for which the credit was being claimed. For the Fosters to qualify for the credit, the old house could not have been considered their principal residence after July 27, 2006.
The Fosters argued that they stopped using their former house as a principal residence in February 2006, and therefore met the three-year period.
The Tax Court looked at all of the facts and circumstances to conclude that the old house remained the Fosters’ principal residence after July 27, 2006. The court noted that they did not pay rent or utilities at Mrs. Foster’s parents’ house. Also, the Fosters continued to use their old address for certain purposes: on their 2005 tax returns (filed in October 2006), on Mrs. Foster’s driver’s license renewal in April 2006, and on a rental application in April 2007.
Furthermore, while the old house was on the market, they kept it furnished, frequently stayed there overnight, hosted family gatherings in the house, and kept personal belongings, accessed the Internet, and received bills and correspondence there.
These facts led the court to hold that the old house remained the Fosters’ principal residence after July 27, 2006, and therefore the required three years had not elapsed prior to their purchase of the new house. The court held that they were thus not entitled to claim the first-time homebuyer credit.
—Alistair M. Nevius ( anevius@aicpa.org ) is editor-in-chief for tax.
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