The home buyer tax credit and short sales
In order to qualify for the home buyer tax credit, the IRS says that you must have a binding contract before May 1, 2010. In a short sale, while most people would say that if the seller and buyer agree, then the contract is ratified.
But since short sales are contingent on 3rd party lender approval, is the contract actually a binding contract.
As always, it's best to check with your accountant or financial professional for tax advice on how the IRS might rule but from a real estate standpoint, a second problem with short sales is whether the home can close by June 30, 2010 due to the generally lengthy time it takes to successfully process a short sale.
Speaking of deadlines, good old April 15 is only 2 days away. Have you filed your taxes yet or filed for an extension.
UPDATE: The Charleston Trident Association of REALTORS® received guidance today from the Internal Revenue Service on what constitutes a “binding” contract by May 1, 2010 for home buyers to be able to take advantage of the federal tax credit.
The IRS stated: "A binding contract is a contract that is enforceable under state law. A contract may be enforceable under state law even if it contains certain contingencies, such as for home inspection, financing, appraisal, and short-sale lender approval. Taxpayers who enter into a binding contract to purchase a home before May 1, 2010, and close on the contract before July 1, 2010, can take the credit if they qualify as a first-time homebuyer or long-time resident of the same main home."