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RD
RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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My question is about a primary residence definition for tax

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My question is about a primary residence definition for tax purposes.
A first time home buyer got two places to live: a house he is renting in a town where he is employed as a state employee and another, new house (he/she has just bought) located in another town. The distance between the rented house and the owned house is, say, about 200 miles (3 hours of driving). The first time home buyer wants to share his/her time between two houses: he lives in the rented house during business days (minus his/her business trips) and spends all weekends, holidays, vacations, sick leaves in the house he owned. The owned house is not used as a vacation house of course. Which house is the primary residence? Can the first time home buyer claim the house he bought as his/her primary residence to get the tax credit for first time home buyers?
Submitted: 4 years ago.
Category: Tax
Expert:  RD replied 4 years ago.

 

Whether a taxpayer uses a property as principal residence depends on all the facts and circumstances. Where a taxpayer alternates between two properties,using each as his home for successive periods of time, his principal residence ordinarily is the home where he spends a majority of the time during the year. In addition to the taxpayer's use of the property, relevant factors in deciding whether a property is his principal residence include, but aren't limited to:

-Taxpayer's place of employment;
- Where the family members live;
- Address listed on taxpayer's driver's license and auto and voter registration;
- Taxpayer's mailing address for all the bills and correspondence;
- Where the taxpayer maintains bank accounts; and
- Where the taxpayer maintains memberships (e.g., places of worship, clubs, etc.).

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

Customer: replied 4 years ago.
Thank you for the response. What you wrote is the well-known basics which do not explain much, but they are good to start. As a bottom of fact, the question is how these rules work in practice. "A majority of the time during the year". How to check it? - Who will time the home buyer/taxpayer? He/she can say: my calculations show that physically I could spend 51% of my time in the new house that is hardly disprovable. Second point is as follows. Okay, the taxpayer changed promptly his/her adress to that of the house he bought, got a new driving licence in a county where the new house is located, called to the banks to change the address (fortunately, the banks have branches in the new place), submitted a new W-2 to his/her employer, called to the insurance companies, etc. The home owner family intend to spend more time in the new home, although kids go to school in a town where the taxpayer is employed during school days. Is the new home primary residence?
Expert:  RD replied 4 years ago.

If the home owner family intend to spend more time time the new home but the kids are in the school where the taxpayer works- than the kids do stay with the taxpayer at the place of employment for most of the days. Considering even the number fo days- you will spend more days at your employment location.

 

Hence, though you can change most of the incidental documents to reflect this other house as your primary home, the above scenario will indicate that the other house is not your primary home.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

Customer: replied 4 years ago.
I understand your point. Thank you. However, it is not so simple: the taxpayer spouse is a housemaker who technically can spend with kids at least 190 days in the new house independently of the tax-payer work schedule. Is the new house the spouse's primary residence and the spouse, as anothet home owner, can get the tax credit for first-time home buyers?
Expert:  RD replied 4 years ago.

I do not think your logic would work here. It is not just about living in the new house. It is also about the fact that where do you have more affiliations. Considering the education, your employment and you have a place of abode in the other place will all point to that being your primary residence. It would be difficult for you to argue it otherwise should you be examined.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

Customer: replied 4 years ago.

Okay, I see. Three more small questions to finish:

 

1. Will it work for my spouse who is a homemaker and is able and wants to spend at least 190 days in the new home? I asked this question, but I am not sure you really amswered it.

 

2. It is not about the logic, I dare think. It is about the law in my understanding: the law (regarding the tax credit) says that the only important factor is time (there are no any words about ID, banks, employment, etc.). By the way, frankly speaking, I do not understand why you use "relevant factors in deciding whether a property is principal residence". These relevant factors were created long before the tax credit under discussion was suggested and they were used for other purposes: I failed to find IRS documents discussing the relevant factors with respect to the tax credit for first time home buyers. Is it simply an established practice based on some

precedents?

Anyway, I can submit calculations showing that I can spent more time in the new house than in the rented house if I am examined. Why will it be ignored in your opinion?

 

3. "It would be difficult for you to argue it otherwise should you be examined." If I fail to convince the examiner, what will be the penalties? They will ask to return $4000 or $8000?

 

Thank you.

Expert:  RD replied 4 years ago.

Did you or your wife own any other house?

 

I am sorry but I guess the discussion regarding primary residence does not seem to be relevant in your situation if you did not own the other house. I guess I misunderstood. If neither of you owned a house and this is the first home you are buying and you are going to use it for your residence purposes than you can claim a first time home buyer credit.

 

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

 

 

Customer: replied 4 years ago.

No: no property was owned in the US before. Never. The house purchased is assumed to be used as a residence only (just for living, not a vacation house), no plans to re-sell in future.

You do think the credit of $8000 can be claimed. Are you really sure? If so, it is a great news. However, I am fully confused, to be honest. Would you please explain briefly why the credit may be claimed and should be the "relevant factors" really taken into accout as you and I wrote above? What is the key point you account for? Why the fact that the taxpayers did not own any property before is so decisive? That is very much it. Thank you.

Expert:  RD replied 4 years ago.

Yes, you can claim the credit as a first time home buyer credit.

 

The law defines "first-time home buyer" as a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. Since you both did not own a home and are now buying a home that you would use as your residence - you would qualify for the credit.

 

I can provide you a link to IRS website with faqs that might help in this regard.

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

 

Let me know if you have any question.

 

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience: CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
RD and 3 other Tax Specialists are ready to help you
Customer: replied 4 years ago.
Thanks a lot. Have a nice long weekend.
Expert:  RD replied 4 years ago.
Thanks.

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