Lease Purchase and the $8k tax credit

Anyone out here thought about doing a lease purchase? It has recently come to my attention that the 8k tax credit works on lease purchase deals as well as straight up purchases.
We were quite surprised so I thought I should share
We have lease purchase properties available, but only in the Tampa area.
Kim

Edited: 06/26/2010 at 09:35AM

J Scott

Real Estate Investor · Atlanta, Georgia

6088 posts
66759 Influence
13 Awards

Icon_minipost Sep 03 '09, 02:16 AM

I was under the impression that the $8K tax credit was only available to buyers who took title prior to Dec 1...but with a lease/purchase, the buyer/tenant doesn't take title until they execute their option...

Can you explain how you're making this work for lease/purchase tenants? If this is true, I have a couple lease/purchase tenants who would be very happy...

Edited: 06/26/2010 at 09:35AM

Kimberly Jones

Real Estate Investor · New Orleans, Louisiana

60 posts
149 Influence
3 Awards

Icon_minipost Sep 03 '09, 02:32 AM

The best answer I can give you is to talk to a CPA or tax preparer, ASAP. We have one who handles it for us so I am not exactly the specialist.
We keep hearing that they are trying to extend the credit past Dec 1, let us all hope that they do!

Edited: 06/26/2010 at 09:36AM

J Scott

Real Estate Investor · Atlanta, Georgia

6088 posts
66759 Influence
13 Awards

Icon_minipost Sep 03 '09, 02:36 AM

Originally posted by Kimberly Jones

The best answer I can give you is to talk to a CPA or tax preparer, ASAP. We have one who handles it for us so I am not exactly the specialist.
We keep hearing that they are trying to extend the credit past Dec 1, let us all hope that they do!

My CPA says "no dice" unless they actually purchase the property...and he generally knows what he's talking about when it comes to real estate tax law...

Anyone else have any additional info?

Edited: 06/26/2010 at 09:36AM

Kimberly Jones

Real Estate Investor · New Orleans, Louisiana

60 posts
149 Influence
3 Awards

Icon_minipost Sep 03 '09, 03:22 AM

I will ask our guy and see if he will tell me how they are doing it ;-)

Edited: 06/26/2010 at 09:36AM

Ted Harris

Real Estate Investor · Portland, Oregon

660 posts
27102 Influence
15 Awards

Icon_minipost Sep 03 '09, 07:13 AM

Negative according to my CPA.

Edited: 06/26/2010 at 09:36AM

Paul Beauchemin

Real Estate Investor · East Aurora, New York

71 posts
473 Influence

Icon_minipost Sep 03 '09, 10:30 PM

Per the IRS - I don't think L/P will qualify

Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations?

A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)

http://www.irs.gov/newsroom/article/0,,id=206291,00.html

Edited: 06/26/2010 at 09:36AM

Jesse R

Rehabber · El Paso, Texas

507 posts
2779 Influence
7 Awards

Icon_minipost Sep 09 '09, 11:05 AM

Originally posted by Paul Beauchemin

Per the IRS - I don't think L/P will qualify

Q. Can a taxpayer claim the first-time homebuyer credit if the purchase is pursuant to a seller financing arrangement (for example, a contract for deed, installment land sale contract, or long-term land contract), and the seller retains legal title to secure the taxpayer's payment obligations?

A. If the taxpayer obtains the "benefits and burdens" of ownership of a residence in a seller financing arrangement, then the taxpayer can claim the credit even though the seller retains legal title. Factors that indicate that a taxpayer has the benefits and burdens of ownership include: 1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property. (New 7/2/09)

http://www.irs.gov/newsroom/article/0,,id=206291,00.html

According to these guidelines, it doesn't look like the buyer has to take deed.
Correct?

Edited: 06/26/2010 at 09:39AM

Wendy Polisi

Real Estate Investor · Atlanta/Alpharetta, Georgia

5 posts
26 Influence
1 Award

Icon_minipost Sep 10 '09, 12:14 AM

No, a Lease Purchase doesn't qualify. We have done extensive research on this and had our contracts modified by a CPA/Attorney team so they would be a bona fide sale in the eyes of the IRS but still afford the owner the protection of a Lease Option contract. The bottom line is that the only way to do it and comply is to structure the contract as an owner finance/contract for deed. It has to be a sale in the eyes of the IRS to qualify for the tax credit!

Edited: 06/26/2010 at 09:40AM

Josiah R.

1 post
4 Influence

Icon_minipost Apr 08 '10, 06:46 AM

1. the right of possession, 2. the right to obtain legal title upon full payment of the purchase price, 3. the right to construct improvements, 4. the obligation to pay property taxes, 5. the risk of loss, 6. the responsibility to insure the property and 7. the duty to maintain the property.

To me it seems that all of these rights and responsibilities can be conveyed in the lease/purchase agreement. So to me that says a lease/purchase CAN qualify if structured correctly.

Edited: 06/26/2010 at 12:24PM

Charles Perkins

Landlord · Seattle, Washington

2845 posts
47278 Influence
18 Awards

Icon_minipost Apr 16 '10, 02:31 PM

Josiah, you might be granting temporary rights that typically belong to owners of real estate, but the key here is whether a sale has been consummated.

In lease option, the buyer has not really purchased the property just agreed to consider purchasing the property.

Edited: 06/26/2010 at 12:30PM

Lakia Hasenjaeger

Residential Real Estate Broker · Merrillville, Indiana

35 posts
208 Influence
1 Award

Icon_minipost Jul 22 '10, 04:25 AM

A lease purchase will not work but a land contract will. The land contract does not even have to be recorded. I know this for a fact and have used the tax credit received from the buyers to secure as a down payment on the land contract. They simply sign a promissory note to pay th down payment once they received the check.

Deborah Mettler

Rehabber · travelers rest, South Carolina

50 posts
494 Influence
1 Award

Icon_minipost Sep 25 '10, 06:38 AM

Any CPA in this forum? I have a lease/option contract dated 9/08 and I send the payment directly to the bank, pay the property taxes, pay the hoa fee and had to also pay the sewer upgrade fee. I should be entitled to the tax credit, but it doesn't appear I can. Any thoughts?