Long Time Homeowner Credit

[Peggy Cobb]

New client and I want to make sure I'm okay. I checked some of the archives and didn't find anything, so if I missed something please accept my over booked time schedule. This client lived in her previous home for 10 years and we have 1098 for the last 5 years. But the concern I have is the last year 6/1/08 to mid-April of 2009 she had it as a rental. She moved for work in 2008 to my area and purchased a new home in December 2009.

The time periods and documentation requirements work for the Long-Time Homeowner Credit, but I'm concerned that because she rented her previous home the IRS will deny the $6,500 credit.

I'm considering amending 2008 and reporting the rental income as "income from rental of personal property but not in the business of renting such property". I'm also concerned that this will send the IRS a red flag. She did use a local real estate company to manage the rental.

I appreciate any help and so appreciate the knowledge and willingness to share it that his group has.

Thanks,

Peggy Cobb

Mount Vernon, WA

[jainen]

>will having it as a rental for approx 1 year kill the credit <<

Yes, in my opinion rental use will kill the credit -- at least, if it was structured as every summer for the last four years. They need five years of continuous use during the last eight years.

>>I'm considering amending 2008 and reporting the rental income as "income from rental of personal property but not in the business of renting such property".<<

Why ever would you consider THAT?

>>I'm also concerned that this will send the IRS a red flag.<<

Well, at least we are in complete agreement on this point!.

[kcjenkins]

Whoa. This is NOT "personal property" so that is not an option. And I don't see where you even have a problem. You sais she lived in the house for 10 years, so she lived in the house for 5 of the last six years, right? Then she tried to sell it, and rented it temporarily while trying to sell. You can qualify for the new credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009. The whole point about the 5 of 8 is recognition of the fact that sometimes it takes time to replace one residence with another. And IRS recognizes that people sometimes rent temporarily while trying to sell.

[RitaB]

I don't see where you even have a problem. You said she lived in the house for 10 years...the whole point about the 5 of 8 is recognition of the fact that sometimes it takes time to replace one residence with another.

Bingo. Good answer as usual, KC.

I will add that it should not be any problem to get the property tax records. Just yesterday had a guy in here that was able to run up to the Trustee's office and get more than enough info on the property tax. Took him about 30 minutes to leave my office, get what he needed, and get back to my office.

[Peggy Cobb]

Thanks everyone for the answers. I have called the client and she is bringing by the HUD statements from when she purchased it and sold it, plus the prior year's tax returns that have a copy of the banks' 1098s'

I think sometimes in the "craziness" of this season, you can over think some thing.

Peggy Cobb

Mount Vernon, WA

[kcjenkins]

Yes, we all do it now and then, especially as tax season gets further along. Tired already, and not even through with the farmers. [March 1 deadline for farmers] One large one brought in their paperwork Wed.