Facts: A buyer used funds from an S corporation of which he was the only shareholder to purchase property vesting in the name of the corporation and used as his principal residence. The buyer claimed a first-time homebuyer credit on his individual tax return.
Claim: The Internal Revenue Service (IRS) issued a notice of deficiency, claiming the buyer was not entitled to the first-time homebuyer tax credit since such a benefit is limited to individuals and the property was purchased in the name of an entity, not an individual.
Counter claim: The buyer claimed he was entitled to first-time homebuyer credit since he is the sole shareholder of the S corporation through which the home was purchased.
Holding: A federal tax court held the buyer did not qualify for first-time homebuyer tax credit since the property was vested in the name of an entity and first-time home buyer credit applies only to individuals. [Trugman v. Commissioner of Internal Revenue (May 21, 2012)_TC_]
Editor’s note: An S corporation is distinct from its shareholders, thus nullifying the individual shareholder’s entitlement to the first-time homebuyer tax credit since the property was vested in the name of the entity. Similarly, property owned by an S corporation cannot be considered a “principal residence” as a corporation cannot occupy a residence; rather, it operates as a place of business.
To take advantage of the first-time homebuyer tax credit, the buyer should have been advised by his agent to take the purchase funds from the S corporation, a pass-through entity, as a withdrawal for his personal account. Further, the buyer should have taken title to the property in his own name, not that of the S corporation. This is a tax-free maneuver which would have made the buyer eligible for the tax deduction.