BiggerPockets

Land contracts yes - lease purchase will depend on the structure of your lease and option.

Land contracts qualify because they are a sale.

Lease options will qualify if the option is exercised this year. If they excercise the option (actually purchase it) next year they qualify for whatever is offered next year.

So your doc's have to be clear they buy this year - and they have to buy this year.

Otherwise they are just on a lease.

Ty:

What you are seeing is companies advertising illegally in order to induce someone to purchase.

Scott is correct that land contracts aka contracts for deed do qualify for the $8,000 First Time Home Buyer Tax Credit (the "First Time Home Buyer" moniker is a misnomer because my 64 year old in-laws qualify and they have owned homes for 37 of the last 40 years, so you need to understand the actual qualifications)

One of our clients is a partner in the largest independent CPA and business advisory firm in Georgia, Habif, Arogetti & Wynne. When we put our Down Payment Assistance program together, we consulted with them to ensure that our understanding regarding the First Time Home Buyer Tax Credit was correct and that it could be utilized legally to obtain the First Time Home Buyer Tax Credit.

Because a Contract for Deed (Installment Sales Contract) is considered to be a bona fide sale in the eyes of the IRS, even though neither deed nor title typically change hands until the entire purchase price has been paid in full, it does qualify for the First Time Home Buyer Tax Credit of $8,000 and can be retroacted on 2008's tax return. In English, this means that upon filing an amended tax return, the buyers can receive up to $8,000 from the IRS within 2-4 weeks.

Utilizing the proper contract structure, your buyer clients can also legally deduct the portion of the mortgage interest that they are paying and the property taxes if they are paying them in a manner similar to what they would do if they obtained a mortgage.

This falls under the IRS Publication on Installment Sales Contracts, IRS PUB 537 and IRS PUB 936, Home Mortgage Interest Deductions.

There are special reporting procedures that have to be followed as well as specific line items that have to be utilized.

So, anyone you see advertising that you can get the First Time Home Buyer Tax Credit for a lease purchase or a lease option is falsely advertising.

As Scott mentions, they are nothing other than standard rental agreements.

The one big caveat to a Contract for Deed/Land Contract/Installment Sales Contract is that they do convey equitable interest to the buyer which would require the judicial foreclosure process in the event of a buyer default AND THEN the formal eviction process.

If you are the seller or you are representing sellers, it is imperative to have a contract created that has an ability to retract the equitable interest conveyance so the judicial foreclosure process is negated and you can move straight into the eviction process. This is what we have done.

If you are doing deals in Georgia, you also want to ensure that your contracts have the buyer waiving rights to a trial by jury (which, yes, they can do in Georgia) as the process reportedly takes no less than 12 months. Without the proper contract structure, you end up like a friend of mine did who had a guy in one of his homes for 18 months without receiving payments as the tenant was exhausting the web of legal remedies available. A few lines in the contract would have changed everything and saved him $50,000 in legal fees and the loss of 18 months worth of payments.

Basically it is help meant to spur the purchase of homes because of the economic slowdown. The credit is not 8K. It is 10% of the purchase price up to a maximum of 8K. There are plans available where the seller can claim your "8K" but that is only if you qualify and assign it to him.

There are many other qualifications but this is the jist of it.

The basic process is the buyer (or their tax preparer) fills out a form - sends it in and 8 weeks later they get a check back in the mail.

This is actually money being send from the feds to the buyer unlike previous years where it is just a "tax credit".

This is cash money!

Ok scott & vincent so what you are saying is that actual lease-purchases do not qualify but land contracts aka contract for deed does because of the definition from the IRS. Also do you think they are presenting this in a way that "common folk" like me can understand it or just trying to be misleading?

Jawsette I did not know that the seller could receive the tax credit. That is awesome it is something I really have to look into.

Vincent since we are both in Georgia would you mind sharing the contract that you use so I could get a clearer picture?

Thanks to everyone I have learned alot on this topic.

Lease options will only qualify if the option is done this year. Other wise it is a lease.

Many reasons why they may be advertising the way they are - not going to judge them.

Scott, does the terms of the land contract aka contract for deed matter? What Im asking is can I set it up as a 30 year note?

raz what does IHMO mean?

raz