First, let me state that you have a great deal going on with your contract and understanding thereof and as always, you should seek professional advice from you CPA or tax attorney in matters related to taxes. Having said that, the link to the article you reference isn't working so I cannot directly comment on what it says having not read it. The numbered points you bring out are all contained in the Installment Sales Publication 537. Secondly, as previously indicated, you don't presently have a seller financing arrangement according to IRS language, you have a lease agreement with an option to purchase, according to what you previously stated. What you have presently is a landlord/tenant relationship and a tenancy agreement, not a seller/buyer relationship and purchase and sale agreement (according to what you have stated, remember, I haven't seen your contract). Further, you are trying to pull together several formulas to make this work, e.g., the long time resident feature which applies to owners of properties, not tenants. The IRS requires documentation proving your long time residence status (read prior OWNERSHIP) of a home for 5 of the prior 8 years as:
1. Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
2. Property tax records or
3. Homeowner’s insurance records

It wasn't clear to me if you owned a home prior to your new contract and I am unclear as to your actual contract date because you indicated you signed it on January 20th, 2011. Did you mean 2010?

With respect to the comment about the seller retaining legal title, this is another big misunderstanding that most people have.
Presently, both you and your landlord have legal title. People often confuse the difference between deed and title as it relates to real estate because they think that a title is a paper document that documents and conveys ownership interest like it does with a vehicle. Not so. For real estate, the deed conveys ownership interest. The deed is a paper document. The title is merely a bundle of rights associated with a property, i.e., nothing but air, but enforceable in a court of law. Presently, you have title to the property, as in, you have a bundle of rights associated with your contract and occupancy. Your landlord also has title. Your landlord also presumably has the deed to the property. Incidentally, according to what you indicated, your attorney either knowingly or unknowingly conveyed equitable interest in the property to you and created a de facto sale even though they used a lease option agreement. What they should have done was simply use any one of the documents that the IRS recognizes as a bona fide sale for tax purposes which are: contract for deed, land contract or installment sales contract so you could have qualified for the $6500 or $8000 tax credit, your state tax credit if applicable and had the ability to legally deduct the portion of your payment that is interest and property taxes. But, hey, that's what you get for $400 an hour from someone with a J.D. behind their name.

In any event, painfully, here's my prediction:

You can submit all of your documentation and attempt to apply for the First Time Home Buyer Tax Credit but I am afraid that it is probably going to get rejected due to the type of contract even though a lot of the verbiage sounds like it should qualify. All they can do is say no. Those two bold words at the top of the documents, LEASE & OPTION, are going to be the ammunition they use to blow your argument out of the water. As many of our clients will tell you who have actually received the $8000 credit, the documentation they had to provide was extensive (because the IRS doesn't want to give out the money) and many of their CPAs wrongfully told them that they couldn't get the credit or deduct the payment until we provided them the actual IRS publications proving otherwise.

In any event, like I said, you can submit your documentation and see if they will accept it. All they can do is say no. Hopefully, in a few weeks or a few months you can reply to this thread and tell me how wrong I am and that you two are on a cruise enjoying the tax credit money. I would like to be wrong for your sake. If I am not, since you have all the burdens of home ownership, if I were you, I would use our Contract Conversion feature and get your contract converted so you can at least legally deduct the monthly interest and property tax payments.

Lease Option contracts are not in compliance with the IRS Installment Sales Contract Guidelines, do not constitute a bona fide sale and do not qualify for either the First Time Home Buyer Tax Credit or the interest and tax deduction. If an attorney actually prepared it as you described, he/she didn't know what they were doing and doesn't understand real estate contract law. Under a lease option, you have two separate agreements, a lease agreement and an option agreement. The lease agreement makes you a tenant, not owner or buyer, and nothing else though from your description the attorney has placed the landlord in great jeopardy by conveying equitable interest to you in a tenancy situation. Under a lease, no portion of your payment is technically principal or interest, it is merely a lease payment. Something is wrong with either your contract or the description thereof. As an example, in one part you mention that $900 is principal an interest (but don't mention how much principal you would be getting applied towards principal balance reduction (which you wouldnt get in a lease payment but……) and in another part you say that you are getting $45.00 towards the purchase price (presumably this is a rent credit defined in the option agreement).

In any event, if this contract is a lease option, this contract doesn't qualify you for the tax credit or tax deduction because it isn't in compliance with the IRS Installment Sales Contract Guidelines (though it sounds like a de facto sale has taken place) and it wasn't executed prior to April 30th, 2010.

What you need is our Contract Conversion so you can at least deduct the payment, reduce your insurance costs and legally be classified as an owner. Http://www.financethedream.com/first-time-home-bu…

Feel free to call, email or reply to this comment if you have further questions.

What you need is our <a href="http:// wwww.financethedream.com/first-time-home-buyer-tax-credit” target=”_blank”>Contract Conversion

Is there a method whereby we can utilize the First Time Homebuyers credit, using the "Long Time Resident" feature. We qualify for it along with the financial requirements.

Thanks for your help.

Ben & Sissie Carlton

First, I am sorry to hear about what you are going through and I apologize for the delayed response. We get bombarded with spam comments and yours got buried in the pile. To answer your questions, yes, you are correct, lease option agreements do NOT qualify for the First Time Home Buyer's Tax Credit because they are not in compliance with the IRS Installment Sales Contract Guidelines. So, you don't have to worry about paying the tax credit back because the IRS will never fund it to begin with. Obviously, if the home is in foreclosure, you don't give anyone any additional money. If you haven't already, it is time to start looking for another home because unless the seller pays the past mortgage payments, the home is going to end up in foreclosure and the bank will begin the eviction process shortly after the foreclosure sale (assuming no one outbids them). Let me know if we can help you.

Not to split hairs or get into semantics, but lease options and lease purchases do not qualify for the tax credit. The contract structure has to be either a contract for deed, land contract or installment sales contract that is specifically in compliance with the IRS' Installment Sales Contract Guidelines (which ours are). So, yes, a "lease/purchase type" contract can be written now and qualify you for the tax credit IF, and this is a big IF, it is either a contract for deed, land contract or installment sales contract that is specifically in compliance with the IRS' Installment Sales Contract Guidelines. If it is a standard lease purchase agreement, it will not qualify for the tax credit.

To answer your other question, yes, with us, the tax credit can be used towards the down payment requirement utilizing our Down Payment Assistance Program. The caveat here once again is that the contract you will sign will be a contract for deed, not a lease purchase contract and obviously, you will need to qualify for the tax credit.

I hope that helps. Let me know if we can help you.