If an owner holds a fractional interest in a property and later purchases the remaining interest, do they qualify for the first-time homebuyer tax credit?

Facts: A property owner inherited a 50% interest in a residential property which they occupied as their primary residence. One year later, the owner purchased the remaining ownership interest in the property. The owner claimed a first-time homebuyer tax credit in their tax filings. The Internal Revenue Service (IRS) denied the tax credit.

Claim: The owner sought the first-time homebuyer tax credit, claiming they were eligible  since they acquired a  50% ownership interest in property purchased that year.

Counterclaim:  The IRS claimed the owner was ineligible for the first-time homebuyer tax credit since the owner held interest in the property in the prior year, disqualifying the owner as a first-time homebuyer.

Holding: A federal tax court held the owner was ineligible for the first-time homebuyer tax credit since the owner held a 50% interest in the property in the prior year, disqualifying the owner as a first-time homebuyer. [Colca v. Commissioner of Internal Revenue (2012) ___ TC ___]