Consider the following facts:
- There are only 11 days left before the home buyer tax credit expires
- There are a ton of short sales on the market
- Short sales can take forever to get approved
Given these facts, I'm pretty sure that most agents are avoiding short sales for their buyers that are interested in the tax credit. However, I'm not so sure that this is necessary. I've been trying to figure out if there is a way for a short sale to qualify for the home buyer tax credit.
For background, in order to receive the credit you need to fill out form 5405 when filing your income taxes for this year. Since you will probably not close before the end of the month the answer to the following question must be (legitimately) yes: "If the date purchased is after April 30, 2010, and before July 1, 2010, did you enter into a binding contract before May 1, 2010, to purchase the home before July 1, 2010?" So it all comes down to what constitutes a binding contract. Do you have to have bank approval or is it sufficient for the buyer and seller to accept the contract before May 1?
I've been asking this question of various realtors lately and it's clear that none of us know the answer for sure - even realtors that specialize in short sales. My personal opinion is that buyer and seller acceptance should be sufficient. But I'm not an attorney so don't rely on my opinion (that's a disclaimer, BTW).
However, I did contact an attorney on this matter, Thomas Besore, to get his opinion. Tom agreed that the buyer's and seller's acceptance should be sufficient - after all, the bank's approval is just a contingency - much like any other contingency on the contract that would probably not prevent it from being considered binding for purposes of the tax credit. If Tom is correct then you can qualify for the home buyer tax credit on a short sale as long as the buyer and seller hit the April 30 deadline and the transaction also closes before July 1.
Of course, if you are considering such a transaction you should seek your own legal advice and perhaps the advice of an accountant since it all ultimately comes down to filling out an IRS form (another disclaimer). In the meantime, I'm interested in any other views out there. If someone has an educated point of view on this matter please speak up.