How To Legally Get The First Time Home Buyer Tax Credit If You Are Presently In A Lease Purchase or Lease Option Deal

After yesterday’s blog broadcast about How To Legally Get The First Time Home Buyer Tax Credit On A Rent To Own Home Deal my email in-box got bombarded with a myriad of questions surrounding lease purchase and lease to own contracts and how to legally get the First Time Home Buyer Tax Credit if you are presently in a home with one of these contract structures.

Read the actual question and answer below:

Question:

Hey Vincent are u saying we can not claim the tax under a lease purchase or deal?
My wife and I put $6000 dwn last May on our house. Owner sale$ 239,000 24 months Lease Purchase. We must secure financing by May 2011?
Do we get the tax credit?
Thanks, Jeff

Answer:

Jeff, unfortunately, if your contract structure is a lease purchase, technically you do not have a sale. You have a lease agreement and a separate purchase agreement. Under this type of contract, you are classified as a tenant, not a buyer or owner. Lease to own homes contracts do not qualify as a bona fide sale under the IRS installment sales contract guidelines. As a result, you do not legally qualify for the federal First Time Home Buyer Tax Credit of $8000 or, assuming you are in Georgia, the state tax credit of $1800. Additionally, you cannot legally deduct your payment, or any portion thereof, on your tax return to reduce your tax liability. So, the answer is no. Under your lease to own contract,  you do not legally qualify for the tax credit.

The Good News:

Jeff, the good news is this, fortunately, you contacted me before it is too late. If you meet the other qualification requirements, we can help you legally get the federal First Time Home Buyer Tax Credit of $8000 or, assuming you are in Georgia, the state tax credit of $1800 and help you legally deduct your payment on your tax return to reduce your tax liability. We can do this by simply changing your lease to own agreement structure to one that is in compliance.

Once the new contract is executed, the benefits to you are:

$8000 in cash back from the IRS in a few weeks once your present tax return or amended tax returns are filed. This assumes that you don’t owe taxes. If you do, the back taxes will be deducted from the $8000 credit and you will receive the difference. The last one of these we processed took 3 weeks before the buyer received the direct deposit of $8000.

If the contract date was retro-acted to your original contract date, you would also qualify for the $1800 state of Georgia tax credit, assuming you are in Georgia. Unfortunately, in their infinite wisdom, the state of Georgia decided to make this credit as a credit against state tax liability broken up into three $600 increments. But, any tax credit is a good tax credit.

If you qualify, you will also be able to write off 100% of your monthly payment against your federal tax return. On a $239,000 home, you are probably paying somewhere between $1300 and $1600. Assuming you are in the 25% tax bracket, this has the ability to either increase your monthly take home pay by as much as $400 if your W-4 withholdings are modified correctly or increasing your tax refund in 2011 by as much as $4800.

So, in your case, the actual tangible cash benefit to you by a simple contract change means you could realize as much as $14,600 in tax credits. Wow! That’s a lot of cash for a simple document change.

Now you understand why we constantly proclaim that all rent to own and lease to own companies are not created equal. One other thing, you never mentioned anything about what you were doing to restore your credit so you could qualify for a mortgage by May 2011 so you could actually own the home in your own name and not lose your $6000 down payment. You may want to check out the program we developed to help buyers get fast tracked for mortgage qualification at Credit Repair College. It is credit restoration on steroids and it empowers you to take control of the situation by providing you with live videos of exactly what you need to do, how to do it and provides you with the forms, letters, scripts, etc., to do it quickly. Failure to repair credit is a big reason why most lease to own home tenants never actually purchase the home they get into.

As always, federal law requires that I inform you that I am NOT a CPA or tax attorney (and don’t want to be) and I am NOT dispensing tax or legal advice without a license. With over 90,000 pages in the current IRS code, you should always consult a qualified professional as it relates to your individual situation.

So, to summarize, if you are presently in a lease purchase or lease option contract and you want to qualify for the federal First Time Home Buyer Tax Credit of $8,000, you must change the contract to one that is in compliance with the IRS installment sales contract guidelines. If you would like help with this, we have put together two new programs that will help you get into the correct contract structure:

CLICK HERE FOR HELP CONVERTING YOUR CONTRACT SO YOU CAN GET THE FIRST TIME HOME BUYER TAX CREDIT

If anyone else has any additional questions regarding this or lease to own agreements in general,  simply ask them in the comment box below and we will get them answered.

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