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Lessons from the Tax Court: Homebuyer credit lockout

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in Small Business Tax,Small Business Tax Deduction Strategies

The IRS is targeting “first-time homebuyer credits” erroneously claimed by taxpayers. To qualify for the version of the credit in question in this case, you must have stopped using an old home as your principal residence for at least three years before buying the new home.

New decision: A couple was trying to sell their old home. But they still received bills there, kept their furniture and other personal belongings there and hosted holiday gatherings there. They also listed the old home as their address for federal tax returns.

When they purchased a new home in 2009, the couple claimed an $8,000 homebuyer credit. Result: Because the old home remained the couple’s principal residence, they could not claim the homebuyer credit for the new home. (Foster, 138 TC No. 4)

Note that if you satisfied the three-year rule, you could qualify for the credit, even though you were technically not a “first-time” homebuyer.

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