Now that the cat is out of the bag, more questions are popping up since my post titled 21 Top Questions Answered on the First Time Home Buyers $8,000 Tax Credit.
Over the past several days, the question that keeps popping up is "What TYPE of property is covered under the New First Time Home Buyer Tax Credit?" It appears that the confusion lies in the wording "Main Home" or "Single Family Home". So off I went and here is what I found:
The important point is that the home must be a person's main home." Detailed information on the definition of "a main home" can be found within the contents of the IRS Form 5405 which reads:
Main home. Your main home is the one you live in most of the time. It can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.
Instructions within the form specifically say that the credit is available for any first time home buyer purchasing their "main home".Furthermore, there really is no specific clause that spells out the answer. Many tax laws are open to interpretation and from what tax professionals have indicated, a small multi-family residence would qualify. The professionals continue to say this would include single family detached homes, attached homes like townhouses and condominiums, manufactured homes and houseboats.
I understand that if the new home buyer has a plan to live in a portion of the home and rent a portion out, this would reduce the tax credit basis in the portion of the home that the new buyer is occupying as their "Main Home".
Here is an example:Duplex Purchase - Price = $250,000 and buyer lives in half. $125,000 would count toward the tax credit. The credit is 10% of the 1/2 that they are living in as their "Main Home". So 10% of $125,000 would be $12,500. The Tax Credit is capped at $8,000, so the new buyer would be eligible for the maximum $8,000 credit.
Now if the same buyer decided to buy a four-plex at a price of $350,000 and live in one unit, their "Main Home" would equate to 1/4 of the purchase price, or $87,500. Now take 10% of the $87,500 which is $8,750, therefore they would be eligible for the maximum $8,000 credit provided the income limitation did not apply.
In order for the buyer to reap the maximum benefit of the tax credit, they would need to find a duplex with a price of $160,000 or more to qualify for the maximum credit.
From what I understand, there are many great multi-family opportunities through out Wisconsin. Once again, I hope this information have been helpful. If I run across more stuff that will help answer questions, I will most certainly share it.....
As always, please, please be sure to consult with your personal tax professional as each and every transaction is unique to your particular situation.
Gwenn Tanvas is a Certified Mortgage Planning Specialists who specializes in Government Programs such as FHA, State and Federal VA and USDA Rural Housing Loans. Visit her website for more information, on-line calculators and a secure on-line application. She is able to assist with transaction throughout the state of Wisconsin. Her offices are located in Appleton, Oshkosh and Green Bay and offers the convenience of one-stop shopping. http://www.WisconsinLoanTips.com or http://www.MortgageProsOfWisconsin.com she can also be reached for comment or to answer questions via email at gwennt@centurytel.net
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