Can I still get a tax credit with seller financing?

Question:
Can a buyer claim the first-time homebuyer tax credit if buyer purchases using seller financing?

Answer:
Yes. So long as the buyer obtains the “benefits and burdens” of ownership of the property, then the buyer can claim the credit. This is true even if the seller retains legal title as seller would if the financing document used was a real estate contract instead of a note with deed of trust. Factors that indicate that a buyer has the “benefits and burdens” of ownership include: the right of possession; the right to obtain legal title upon full payment of the purchase price; the right to construct improvements; the obligation to pay property taxes; the risk of loss; the responsibility to insure the property; and the duty to maintain the property. All of these characteristics are true of a typical, arms-length seller financing arrangement using either a note with deed of trust or a real estate contract.

The preceding is an opinion from Annie Fitzsimmons, the attorney who answers questions for the Washington Association of REALTORS® Legal Hotline. For additional questions or information, please contact Jen at (206) 293-1005 or send me an email to jen@jenhudsonhomes.com.