What constitutes a home purchase by the IRS’s definition?
There is an $8,000 tax credit available for first time home buyers, but Form 5405 doesn’t say anything about what is considered a purchase. Specifically I’m wondering about seller financing transactions such as an Agreement for Sale aka land contract, contract for deed, etc., in which the buyer gets equitable title but the seller maintains legal title until the loan is paid off. Is that considered a sale? Is there a definition anywhere?
I would ask the IRS since it may depend upon all the details. According to IRS Publication 544 “A sale is a transfer of property for money or a mortgage, note, or other promise to pay money.” It does not say it is not a sale until you get clear deed or title.
If you buy land on contract and that contract is recorded at the county, the seller is transferring possession to you, and you are listed on the property tax bill, so I would consider that a sale, and so would the IRS for income tax purposes (capital gain for seller). Although, according to IRS Pub 537 about installment sales, the seller could either take the capital gain the year of the sale or over subsequent years when principal payments are made, plus interest income when that is paid.
Div 7A loan agreements that go for 25 years
