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It Must Be An Arms- Length Transactions to Claim the TAX CREDIT

By
Real Estate Broker/Owner with Missy Caulk TEAM

Arms Length Transactions

Many want to know and ask if it is OK to claim the credit if they sell or have sold to a family member in an Arms-Length Transaction.

I keep getting questions and upset commenters on my blog about land contracts being OK in Michigan for the $8000.00 tax credit.

What is an Arms-Length Transaction?

Investopedia Says:

The concept of an arm's length transaction commonly comes into play in the real estate market. When determining the fair market value of a piece of property, the price for the property must be obtained through a potential buyer and seller operating through an arm's length transaction, otherwise, the agreed-upon price will likely differ from the actual fair market value of the property.

A transaction among parties, each of whom acts in his or her own best interest.
 This would include a father-son, mom and kids, relatives, wife to husband with a different last name.

For instance, if I wanted to sell my house to Christa and Bob, I would sell it at a lower price than to a normal buyer.

You would do the same right?

The rules for claiming the land contract tax credit are fine, but they still must follow the law that you must do a Arms-Length Transaction to get the credit.

It is sad to read the 98 comments where many ask this question about selling to a relative in an Arms-Length Transaction and wanting to claim the credit.

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KW LogoMissy Caulk & Team can be reached at 734-216-2822 or email: Missy@MissyCaulk.com

Our TEAM of 6 buyer associates are available to help you relocate to Ann Arbor, Saline, Dexter, Chelsea, Milan, Ypsilanti Township, Clinton, Manchester, Whitmore Lake, or throughout Washtenaw County, MI.

 

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Missy Caulk, Ann Arbor Realtor

Missy Caulk, Broker/Owner of Savvy Realty Group can be reached at 734-926-9797 or email: Missy@MissyCaulk.com

Our Team of 6 agents are available to help you relocate to Ann Arbor, Saline, Dexter, Chelsea, Milan, Ypsilanti Township, Clinton, Manchester, Whitmore Lake, or throughout Washtenaw County, MI.

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Comments(13)

Geoff ONeill
John L. Scott Medford - Medford, OR

Great Post.  I'm sure there are folks out there who will try this anyway.

Feb 13, 2010 01:58 AM
Kris Wales
Keller Williams Realty - Lakeside Market Center - Macomb, MI
Real Estate Blog & Homes for Sale search site, Macomb County MI

I've been asked that also, usually in context of:  "I want my son/daughter/cousin to make money from the credit.  If I sell it to them and they claim it, would we get in to trouble?"

Uhm.  Usually if the question is "Will I get in to trouble?" should tip a person off.

Feb 13, 2010 02:08 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

THanks for this clarification , Missy. I suspect many do not realize this or understand the implications. Another issue I find folks are confused about is the amount of the credit. I have had quite a few talka bout getting the $8000 tax credit when they are buying a $200,000 condo. Nope -it's 10% of the PURCHASE PRICE up to $8000.

Jeff

Feb 13, 2010 02:18 AM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Jeff, there is confusion. Especially since the rules changed in 09, 09 and now again. But, the basics involving Arms Length was always the same. I know most normal buyers don't understand.

Kris, wow that is so obvious.

Geoff, and get caught. Now or later.

Feb 13, 2010 02:24 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

BTW I wrote an article on my First Time Buyer Blog about the confusion on the amount of the credit, and also linked to your article.

Feb 13, 2010 02:45 AM
Steve Kantor
BEST AGENT BUSINESS - Bethesda, MD
Best Agent Business - Virtual Assistance

Missy, after reading through the comments in your link, I came away with a couple things.

1. People need knowledge about the credit & need clarification if it applies them in their situation.

2. People want the answer now without reading.

This is living proof why we can't talk enough about the credit or other pertinent real estate news that could translate to help for clients. Someone on Active Rain recently wrote a post on how many blogposts there are out there who still write about the credit. As I've said before, there are many people out there who have not read one of nearly 2 million posts.

They need the information clearly, agan and again!

Feb 13, 2010 02:55 AM
Patricia Kennedy
RLAH@properties - Washington, DC
Home in the Capital

Missy, great post, and one more illustration that the federal tax credit is not as simple as it might first appear to be. 

Feb 13, 2010 04:05 AM
Steve, Joel & Steve A. Chain
Chain Real Estate Investments & Mortgage, Steve & Joel Chain - Cottonwood, CA

Missy,

The IRS also wrote a great article with examples of what can and can't be done in qualifying transactions.

Steve

Feb 13, 2010 04:09 AM
Bob Stewart
ActiveRain - Seattle, WA
ActiveRain Ambassador

how about the lake house? Will you sell us that one below market value? :-P

Feb 13, 2010 05:07 AM
Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Savvy Realtor - Ann Arbor Real Estate

Bob, I am not getting emails from comments on all my posts. I just found this one, and the answer in LOL

Feb 27, 2010 01:16 AM
Jeff Rainwater
John L. Scott MPV - Maple Valley, WA

Great post. I never thought about that. i'm sure some people have been trying to take advantage of it. It'll come back to haunt them if audited.

So that brings up this question...what about short sales? I'm sure there are many short sale deals that are not arms length, and taking advantage of the seller's unfortunate situation right? So do we think some legitimate short sale buyers thinking they are getting a steal of a deal due to seller missfortune are not qualified?

Apr 16, 2010 11:25 AM
Jeff Rainwater
John L. Scott MPV - Maple Valley, WA

Great post. I never thought about that. i'm sure some people have been trying to take advantage of it. It'll come back to haunt them if audited.

So that brings up this question...what about short sales? I'm sure there are many short sale deals that are not arms length, and taking advantage of the seller's unfortunate situation right? So do we think some legitimate short sale buyers thinking they are getting a steal of a deal due to seller missfortune are not qualified?

Apr 16, 2010 11:25 AM
Tony and Suzanne Marriott, Associate Brokers
Serving the Greater Phoenix and Scottsdale Metropolitan Area - Scottsdale, AZ
Haven Express @ Keller Williams Arizona Realty

Short Sale Buyers and Sellers who ignore the Arms Length requirements risk legal consequences - both criminal and civil.

Dec 14, 2010 12:43 AM