Not great news re: homebuyer tax credit

[WoodSprite]

I just got off the phone with the IRS with a good news/bad news answer to my question which may be of some interest to anyone who's pushing to beat the deadline for the $8,000 home buyer's tax credit.  

Probably everyone knows that the credit is available to anyone who fits the eligibility guidelines, and who has a binding contract with a builder or seller in place by April 30th, with a closing date by June 30th.   If, like us, you have no contract with builders or sellers, the date of your certificate of occupancy serves as the closing date.   But in this case, the IRS hasn't written down whether the date needs to be April 30th or June 30th, and of course that's a world of difference in a place where we will still have snow at the end of May.  No way we could make April.  June - well, possibly.

So the good news is that the date is June 30th.  Hooray for our side.

While I had them on the phone, I asked another question:  since the house won't be appraised until July, do I just file an amended return once I know the value of the home?  Our place is certainly not going to end up being valued at $80,000 - more probably in the $60-$70K range, and the "$8,000 tax credit" is actually 10% of the purchase price, up to $80,000.  So it has to be appraised before I know how much to claim, right?

Wrong.  

Why?  Because the people on this list who have built a home with their own two hands don't get to claim that the finished product is worth the market value.  According to Publication 551, we get to claim that the finished product is worth the cost of the concrete, nails, and plywood we put into it, plus any labor we paid anyone else to do for us.  It specifically warns:

"Do not include the value of your own labor, or any other labor you did not pay for, in the basis of any property you construct."

What we may include is:


     - Cost of the land.
     - Cost of labor and materials.
     - Architect's fees.
     - Building permit charges.
     - Payments to contractors.
     - Payments for rental equipment.
     - Inspection fees.

Obviously most of us on this list are not building a house because of this tax credit.  But I'll bet we weren't the only ones expecting to get the seed money for Phase II this way.  Looks like unless Phase II is a chicken coop or a really fancy outhouse, we can just forget that.  IF we can knock together something habitable by June 30th, we can claim 10% of the materials we put into it - and we'd better be prepared to provide receipts for every last box of deck screws.

<Sigh...>  I know, it's better than nothing, but...shoot.

[OlJarhead]

We refinanced our place and we don't qualify -- found that strange.

[ScottA]

I need to look into this.

[pocono_couple]

hi woodsprite.. thanks for doing the research.   have you talked with the building inspector to see just how much of the house needs to be done in order to get an occupancy permit?   june 30th seems like a real stretch, as far as we are concerned.. especially if we need to have the outside siding in place.. but, if we just need some sheetrock and heat and a functioning bathroom and kitchen.. that might be in the realm of possibility...    how is your place coming?

[WoodSprite]

hi woodsprite.. thanks for doing the research.   have you talked with the building inspector to see just how much of the house needs to be done in order to get an occupancy permit?   june 30th seems like a real stretch, as far as we are concerned.. especially if we need to have the outside siding in place.. but, if we just need some sheetrock and heat and a functioning bathroom and kitchen.. that might be in the realm of possibility...    how is your place coming?

Hey, there.  So sorry for the delayed response; we've been trying to take advantage of our 8-month winter to make some money doing music.  So we're squeezing in all the gigs we can scrounge and all the recording we can afford while Ron doesn't have to beat up his hands building a house.

We have a real peach of an inspector, so I'm afraid I can't offer any relevant info about what constitutes "habitable".  When the tax credit deadline was extended, we talked to him about it, told him honestly what we were hoping to do, crazy as it is, and asked him flat out what it would take to get a certificate of occupancy.  His answer was music to our ears:  "let's see...knock it together, close it in, make sure you have a front door and a back door, and we'll call it good."

Of course, he wouldn't let us "knock together" anything unsafe or illegal, but if it meets those criteria, he's okay with it.  Remember, this is the guy who once apologized for not running our building permit renewal right over by saying "[Our_Town] is white hot right now...got SIX projects going to once!"  Not a trace of irony - this is a Very Big Year here.

I hope to have the blog updated sometime in the next few weeks - in a nutshell, we've got a foundation (woo-hoo!), but we're out of our minds to even be thinking about a June 30th deadline.

[drainl]

Nice woodsprite.  I check on your blog every once in a while to see how things are going for ya..
peace
Jeff

[jdhen]

Hi Woodsprite,
Now I'm really confused ( but I guess this is the IRS we're talking about).  We got exactly the opposite response when my wife contacted them today.  She was told that April 30th was the cutoff and only those who have some type of contract for purchase have until June 30th.  The additional time is there only to allow contracts to be completed.   She was told that if you build from savings you must be in by April 30th. 
I think it's likely that we could call several times and get different answers from different representatives.
Good luck!

[WoodSprite]

Hi Woodsprite,
Now I'm really confused ( but I guess this is the IRS we're talking about).  We got exactly the opposite response when my wife contacted them today.  She was told that April 30th was the cutoff and only those who have some type of contract for purchase have until June 30th.  The additional time is there only to allow contracts to be completed.   She was told that if you build from savings you must be in by April 30th. 

Of course they did.  Argh.  That was actually the answer I was expecting.

I think it's likely that we could call several times and get different answers from different representatives.
Good luck!

I'm sure you're right.  While they were at it, I don't suppose they also told your wife that you can claim 10% of the full market value? 

I'm beginning to think that IRS telephone agents must be trained to keep us on hold for a minimum of 2 hours, then say the first thing that comes into their heads, hoping we'll become so confused that we'll just send them all our money!

Well, thanks a lot for the report, Jesse.  Anybody else?

[MountainDon]

tax accountant/lawyer; not a tax service.   As for the IRS I seem to recall reading somewhere that they do not guarantee the accuracy of their phone info.    They only guarantee the info in their publications. And those can be difficult to interpret at times.

I have looked and can not find any info anywhere on whether or not the home buyer tax credit is applicable to the owner-builder home builder. Pub 551 advises how to determine cost basis. However, it makes no mention of the home buyer tax credit. My pessimistic side is telling me to be careful about this.


As for the dates... the IRS web site has this...  "The Worker, Homeownership, and Business Assistance Act of 2009 extends the deadline for qualifying home purchases from Nov. 30, 2009, to April 30, 2010. Additionally, if a buyer enters into a binding contract by April 30, 2010, the buyer has until June 30, 2010, to settle on the purchase."  One interpretation of that would be that the months of May & June give you time to complete the closing once the deal has been finalized by April 30.    Could be; and could be I don't have a clue.

[waggin]

I'm in real estate, and all the information I have seen states the following:
Under contract by April 30th and closed by June 30th.

Here's one link:
http://www.federalhousingtaxcredit.com/faq1.php

Now if it's an owner/builder trying to qualify for the credit, one of the questions is when was the land purchased?  Is it within the eligible date range, or are you just trying to claim the building/improvements that you're adding to the property?  If that's the case, see #13 on the above link.  Looks like most of this has been covered in previous responses.

[WoodSprite]

As for the IRS I seem to recall reading somewhere that they do not guarantee the accuracy of their phone info.     They only guarantee the info in their publications. And those can be difficult to interpret at times.

No kidding.  I'm a reader and a researcher; I'm really good at poring over this stuff, and the ONLY thing that could possibly entice me to drive down to a pay phone and stand there in the cold for an hour is if the publication is unclear.  The guy I talked to actually admitted that this particular issue is unclear.  Wasn't that helpful?

I have looked and can not find any info anywhere on whether or not the home buyer tax credit is applicable to the owner-builder home builder.

As I read it, the instructions for form 5405 (http://www.irs.gov/pub/irs-pdf/i5405.pdf) are relatively clear that the credit IS available to us:

If you build, or contract to build, a new home, your purchase price includes costs of construction.
For information about adjusted basis, see Pub. 551, Basis of Assets.

and even about what documentation is required in lieu of the settlement statement:

If you are claiming the credit for a newly constructed home, attach a copy of your certificate of occupancy
showing your name, the property address, and the date of the certificate.

but, as you say, what's unclear in the case of an owner-builder is the date that needs to be on the certificate of occupancy.

Pub 551 advises how to determine cost basis. However, it makes no mention of the home buyer tax credit. My pessimistic side is telling me to be careful about this.

You're probably right, Don.  Still, since Pub 551 is directly cited in the instructions for 5405, "First-Time Homebuyer Credit and Repayment of the Credit", I think even the IRS would have a hard time saying they didn't mean that owner-builders would be eligible.

I'm in real estate, and all the information I have seen states the following:  Under contract by April 30th and closed by June 30th.

Here's one link:
http://www.federalhousingtaxcredit.com/faq1.php

Now if it's an owner/builder trying to qualify for the credit, one of the questions is when was the land purchased?  Is it within the eligible date range, or are you just trying to claim the building/improvements that you're adding to the property?  If that's the case, see #13 on the above link.  Looks like most of this has been covered in previous responses.

Maybe I'm seeing what I want to see, Waggin (life is so much simpler that way!), but that's not the way I read #13 in the link you sent:

13.  Instead of buying a new home from a home builder, I hired a contractor
to construct a home on a lot that I already own. Do I still qualify for the tax credit?

Yes. For the purposes of the home buyer tax credit, a principal residence that is
constructed by the home owner is treated by the tax code as having been
“purchased” on the date the owner first occupies the house. In this situation, the
date of first occupancy must be on or after January 1, 2009 and on or before April
30, 2010 (or by June 30, 2010, provided a binding sales contract was in force by
April, 30, 2010).

That doesn't look as if anybody cares when you bought the land, only when you received a certificate of occupancy, no?
Of course, that's not an IRS publication...

My head hurts...

[waggin]

Yup, clear as mud.  Seems that in the link I provided and the IRS publication noted, nowhere do they define whether the land purchase previously can be rolled into the cost as basis for the credit, hence my question.  The gist of my curiosity is how a previous (out of eligibility date range) land purchase factors into the cost basis (or not.)  If not, then are costs incurred only after the program start date allowed?  I assume anything like studies, permits, site improvements, etc. are all allowed.  ie: anything you wrote a check for in the eligibility range is ok.

Of course, since it's not written out in the IRS publication, you could ask multiple phone help folks and get multiple interpretations which may or not be valid.  Down the road it would all be open to interpretation again.  Good luck on getting an actual definition of eligibility!

[WoodSprite]

Yup, clear as mud.  Seems that in the link I provided and the IRS publication noted, nowhere do they define whether the land purchase previously can be rolled into the cost as basis for the credit, hence my question.  The gist of my curiosity is how a previous (out of eligibility date range) land purchase factors into the cost basis (or not.)  If not, then are costs incurred only after the program start date allowed?  I assume anything like studies, permits, site improvements, etc. are all allowed.  ie: anything you wrote a check for in the eligibility range is ok.

It's in Publication 551, which lists:
     - Cost of the land.
     - Cost of labor and materials.
     - Architect's fees.
     - Building permit charges.
     - Payments to contractors.
     - Payments for rental equipment.
     - Inspection fees.

as allowable.  Just not your own labor.  As you say, site improvement - well, septic, driveway, etc - isn't clear.  But just keep calling back until you get the answer you want, right?

[ScottA]

I wonder how I would deal with the fact there is no C.O. here since there is no permit or inspections?

[jdhen]

Scott, This has been my main concern.  I have no HUD statement nor will I get a certificate because there are no building permits to pull in my rural area.  What they have told me is to go to a lawyer and get an affidavit signed and notarized stating that we've moved into the home by such and such date (before April 30th) and "save all of your receipts" which is, I'm sure, code for "you will be audited".  I've called several times and they give me the same answer- "we just want some type of legal form stating that you live in the house".
So that's what I'm going to do....  we'll see.