The Tax Court on Thursday ruled that a taxpayer in Texas qualifies for the First-Time Homebuyer Credit even though he bought a home under a contract for deed (and so didn’t have official title to the home yet) and even though he has not yet moved into the home.

The taxpayer bought the home in 2008.  The home needed repairs before he could move in, and he lived elsewhere while the remodeling took place.  The IRS paid him a $7,500 homebuyer credit in early 2009.  Later in 2009, the IRS came back and denied the credit.  The taxpayer appealed, and stopped renovations on the home until the issue could be resolved.  He has never actually lived in the home.

The IRS’s argument was that because the home was bought under a contract for deed, the deed had not formally transferred to the taxpayer and so he hadn’t truly bought the house yet.  They also argued that because he hadn’t moved into the home yet, he wasn’t using it as his primary residence and so was ineligible for the credit.

The Tax Court disagreed with the IRS on both counts.  Regarding the deed contract, the Court ruled that “equitable ownership” had passed to the taxpayer, even though the actual deed hadn’t been transferred yet:

Although legal title remains with (the seller), equitable title passed to petitioner in 2008 upon signing of the contract for deed. Petitioner paid (seller) an initial downpayment of $2,000 and took possession of (the) house. Petitioner is required to pay all property taxes after December 18, 2008. Finally, nothing in the contract for deed removes petitioner’s obligation to make his monthly payments to (seller) for any reason. Therefore, we find that petitioner acquired equitable title and therefore “purchased” the … house in 2008.

On the primary residence issue, the Court ruled that, for purposes of the homebuyer credits, it’s the taxpayer’s intentions that count.  In this case, the Court ruled that the taxpayer intended to make the home his primary residence:

(H)e intended to occupy the … house as his principal residence as soon as renovations were completed. He further argues that he intended to use the FTHBC to pay for the renovations and that he was forced to suspend work on the … house when he learned that the FTHBC had been disallowed. Petitioner therefore argues that he was not given the opportunity to establish the Rice house as his principal residence. We agree with petitioner.

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