Buyer cannot claim first-time homebuyer tax credit on property vested in his LLC entity

Facts: A buyer purchased property to use as his principal residence, taking title in the name of a limited liability company (LLC) solely owned by the buyer. The buyer claimed a first-time homebuyer credit on his individual tax return. The Internal Revenue Service (IRS) disallowed the buyer’s first-time homebuyer credit, issuing a notice of deficiency and demand for additional tax payment.

Claim: The buyer claimed he qualified for first-time homebuyer credit since he was the sole owner of the LLC which took title to the property.

Counter claim: The IRS claimed the buyer did not qualify for the first-time homebuyer credit since the property was not vested in the name of the individual buyer but in the LLC.

Holding: A federal tax court held the buyer was not eligible for the first-time homebuyer credit since the LLC held title to the property occupied as the buyer’s principal residence and first-time homebuyer tax credit is intended for individuals, not entities. [Rospond v. Commissioner of Internal Revenue (May 21, 2012)_TC_]

Editor’s note: The buyer should’ve withdrawn the money for the property from the LLC for his personal account—a movement devoid of any tax consequences. The buyer should’ve then placed title to the property in his own name. Then he would have qualified for the first-time homebuyer tax credit.