First-Time Homebuyers Credit and Multi-Family Home

[Chowdahead]

If a person purchased a multi-family home in 2008, under the current rules they would be eligible for up to a $7500 credit, which must be paid back. However, there are certain qualification restrictions, which are not readily advertised.

One of the bigger ones that I noticed was that a person may only qualify for a certain percentage of the credit based on their business use percentage of the property. The IRS references the rules on Sale of a Principal Residence for Capital Gains Exclusion, for a definition of what "principal residence" means.

My question is, that if a person buys a 2 family home and they live in one unit, are they eligible for only 50% of the credit? If they purchase a three family home, are the eligible for only 33.3% of the credit?

Separately, if a homeowners sells their principal residence and the property is a multifamily, are they eligible to exclude only the applicable percentage that is non business-use? Do they have to report the business portion (i.e. the apartment they rented) as a capital gain?

[BulldogTom]

This was my question on an earlier thread, and I have not found an answer. If you have any source material on this, please post it. I have a client who is purchasing a quadplex. He will live in one unit.

My first thought, which will probably not be right, is that you treat it the same way you would for depreciation. The square footage of the entire property divided into the total purchase price times the square footage for the personal portion. That will give you the purchase prices of the personal residence, which will then be used to determine the 10% limit for the credit.

Using my example, if the quadplex is 2000 square feet and cost 400K, and the personal residence is 500 square feet, the purchase price of the personal residence is 100K (400K / 2000 sq ft X 500 sq ft). The limit imposed by the law is 10% of the purchase price or 8K. In this example, he would get the 8K credit (or the 7500 if purchased in 2008) and the 300K would be the rental portion to be depreciated (minus land of course) on the E.

This is how I am going to approach this until I see some better guidance from the IRS.

Anyone who has some source material, please post it. I would really like something with authority other than my own thoughts.

Thanks.

Tom

Lodi, CA