Purchased House from Sister

[LisaAnn]

I think I know the answer, but need some reassurance:

Taxpayer wants to get the long-time resident credit; he meets all of the criteria except that I need to confirm that purchasing a home from his sister is not considered a related-party for this purpose.

Researched and found documentation in the 5405 instructions:

Who Cannot Claim the Credit

You cannot claim the credit if any of the following apply:

9. You acquired your home from a related person. This includes:

a. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).

b. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.

c. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

For more information about related persons, see the discussion under Nondeductible Loss in Chapter 2 of Pub. 544, Sales and Other Dispositions of Assets. When determining whether you acquired your main home from a related person, family members in that discussion include only the people mentioned in 9a above.

I checked out the Pub 544-chapter 2 for related-party clarification and it does state the sisters, brothers..whole or half are considered related parties.

BUT............because of the disclaimer in the 5404 instructions:

When determining whether you acquired your main home from a related person, family members in that discussion include only the people mentioned in 9a above.

My conclusion:

Taxpayer would be eligible for the long-time resident.

Is my conclusion correct?

Thanks!

[kcjenkins]

Yes, according to their own instructions, he is eligible for the credit. Guess Congress figured [probably correctly in most cases] that siblings are less likely than parents or grandparents to make 'bargain' deals?

[LisaAnn]

Yes, according to their own instructions, he is eligible for the credit. Guess Congress figured [probably correctly in most cases] that siblings are less likely than parents or grandparents to make 'bargain' deals?

Thanks KC.

Now here's a twist....taxpayer informed me that they haven't moved in yet because they are doing renovations. Does that disqualify them because it's not being used as their primary residence yet? I looked everywhere for clarification on this and only could find info about new construction where the date of occupancy is considered the date they purchased. Although, I did find in an IRS scenerio that when you purchase a house it's the date of settlement not the date that you occupy that makes you eligible. Can that be used as my backup?

Thank you again for your reply.......sometimes I have a hard time swimming in the gray area of tax laws!

[kcjenkins]

Yes, that should be reasonable to rely on.

[LisaAnn]

Yes, that should be reasonable to rely on.

Great.