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Thursday, April 22, 2010

WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES?? "Let's all be careful out there.."

We as Realtors have to disclose that all tax advice must be sought from a tax professional. I will form an opinion from what I have read and found out but in the end my advice is to consult with a tax professional. I ran across Lenn Harley's blog while on hold for close to an hour with the IRS trying to get an opinion on what constitutes a binding contract in a short sale situation. Ms. Burchett #0246491 basically said to me that the binding agreement is between buyer and seller. To tell you the truth I don't think she really understood what a short sale was although I tried to explain that the lender ultimately approves the sale. For my own selfish reasons I would like to end it there but I have to agree with Lenn and advise everyone to seek their own advice from a qualified tax professional or the IRS themselves.

My real conclusion is that the tax code is too complicated and we ultimately need to figure out how to increase tax revenue while lowering the tax burden and my suggestion is that everyone look into the Fairtax at http://www.fairtax.org.

Via Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate:
WHAT IS A "BINDING" CONTRACT OF SALE FOR IRS TAX CREDIT PURPOSES??
Depends on whether you are a
  • HOME BUYER
  • HOME SELLER
  • REAL ESTATE LICENSEE
  • IRS TAX FORM REVIEWER
  • LEGISLATIVE BILL WRITER
  • OTHER
Sadly, this is a perfect example of the fact that the brains who dreamed up the income tax credit do not have the foggiest idea about how their programs effect the tax payers, or should I use the term the IRS uses, "Worker".  You gotta love that.  SEE:
The Worker, Homeownership, and Business Assistance Act of 2009
WHY IS THIS SO IMPORTANT?  Because the determination of what constitutes a BINDING contract may cause the denial of the tax credit to MILLIONS of tax return filers who believe that they qualify, plan to use the funds and, generally, realy on the advice OF REAL ESTATE AGENTS in matters of real estate.
HAVE YOU BEEN ASKED FOR ADVICE ABOUT THE CREDIT???  I surely have. 
Lola Audu  has published a post examining this matter, however, as with any real estate practitioner, has serious questions about the meaning of the IRS guidelines.  As for Jim Hale's thoughtful comment, I could easily read the IRS instructions that way.  However, without APPROVAL by the seller's lender, there is no "binding" agreement.  What "binds" a Contract of Sale??
For one thing, satisfaction of all contingencies.  When is the "lender approval" contingency of the Contract of Sale for a short sale satisfied??  When you get the approval letter FROM THE SELLER'S LENDER.
Sadly, those conditions do not include satisfaction of that critical contingency, approval of the Contract of Sale by the Seller's lender.  Without which, there has not been, is not and never will be a BINDING Contract.
What is going to happen when thousands of home buyers file for the tax credit and the IRS denies their application because, without satisfaction of that contingency by April 30, there is no BINDING Contract of Sale.
The key word is, of course, BINDING.
I'm willing to accept that, for purposes of the Tax Credit, the BINDING condition for claiming the tax credit is the date of acceptance between the parties, the BUYER and the SELLER.
However, I am not going to STAKE MYSELF OUT AND GIVE THAT ADVICE TO A CONSUMER.  I'm going to refer inquiries to the IRS web site and let the consumer come to their own conclusions or the advice of their tax consultant.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

                           TAX CREDIT
"Honey, were you able to find out if our contract will qualify for the tax credit?"
"Not yet Dear.  I asked 4 people and got 4 answers."

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