Homebuyer tax credit: Do you have a ‘binding contract’?
When the initial homebuyer tax credit was set to expire back in November of 2009 I wrote about some of the last-minute tips that might help protect REALTORS® and their clients. Now we’re at the end of a new cycle and you have all those issues staring you in the face, along with a new one.
The way the credit operated in 2009 was very black and white: a property had to go to closing by a certain date to qualify, and the property either closed or it didn’t. There was little wiggle room and little anyone could do to hide the fact that a closing didn’t occur in time.
In this cycle buyers must close by June 30, but the buyer must also have had the property under contract no later than April 30 (except for certain military personnel). The term used by the IRS is that the buyer must “enter into a binding contract to buy.”
What is the definition of a “binding contract?” Can there be any open contingencies after April 30? Does it matter if those contingencies are under the control of the buyer, the seller or an outside third party?
All good questions that I’d love to answer. The problem, however, is that the latest information from NAR is that the IRS does not define “binding contract” in the context of this tax credit. There is some guidance on the term as it relates to certain corporate tax rules but nothing specific to this tax credit.
As buyers and their agents start getting close to the contract deadline there may be an increased incentive to cut some corners so there’s an appearance of a contract before April 30 even if that contract doesn’t look like one you’d normally craft with a buyer. Don’t do it.
And if you’re tempted (or requested) to do something that’s out of the ordinary with an eye towards getting something signed by April 30, remember that the IRS is already actively investigating numerous claims of fraud around the tax credit.
The IRS is looking around to find unusual circumstances that look fraudulent, but since there is no clear rule they don’t know exactly what rules they’ll apply. What does this mean to you? If there is anything out of the ordinary with a transaction send your client to an accountant or tax attorney for an opinion; don’t give advice on whether a particular contract tactic will or will not be allowed.
If a buyer takes a chance by cutting corners and her tax credit is later disallowed you can be sure she’ll want to sue someone. Let it be the accountant or attorney – don’t put yourself in the line of fire by giving advice that you’re not qualified (or licensed) to give.
Topics
Share this post
Member Discussion
Recent Articles
-
Earn Your Divorce Specialist Certification at Triple Play
- November 14, 2024
- 2 min. read
“Don’t wait until the middle of a transaction to realize there are things you need to know to serve your customers better,” says Realtor® and Triple Play speaker Addie Owens.
-
Unaffordable Market Shrinks First-Time Buyers; Agents Remain Key
- November 13, 2024
- 4 min. read
“We have an all-time high of all cash buyers and an all-time low of first-time homebuyers,” noted NAR Deputy Chief Economist and Vice President of Research Dr. Jessica Lautz.
-
Recent Homebuyers Saved for Five Years on Average
- November 12, 2024
- 2 min. read
On average, recent buyers who were surveyed put down an average of 17.38% on their new home. However, 49% put down 10% or less of the purchase price.
Daily Emails
You’ll be the first to know about real estate trends and various legal happenings. Stay up-to-date by subscribing to JustListed.