Posts Tagged ‘binding contract’

The Home Buyer Tax Credit has two deadlines:  1.  Enter a Binding Contract on or before April 30, 2010; and 2. Close on or before June 30, 2010. 

As the 1st deadline for the Home Buyer Tax Credit fast approaches, one question keeps rearing its ugly head: What is a “Binding Contract” according to the IRS? 

Unfortunately, at this point the answer is a resounding: Nobody Knows!  The IRS has not issued any guidance or definitions.  So what is a home buyer to do?

First, Write Clean Offers!  It is not uncommon for For-Sale-By-Owners (FSBOs) or inexperienced agents to inadvertantly leave certain contract terms blank.  This can lead to an ambiguous or unenforceable agreement.  In addition, contracts that allow one party to unilaterally cancel for any reason or are not enforceable as to one party may not be binding as to any party.  Thus, a contract that fails to state a critical term or allows a buyer to cancel the contract for any reason may not constitute a “meeting of the minds,” and my not be a “binding contract.”  Will the IRS scrutinize contracts to this level?  Who knows.  But it does add one more reason for Realtors, attorneys, and parties to be diligent in drafting offers to purchase.

Second, hire a trusted accountant or tax advisor.  The cost of great advice will be worth it if it means getting a large tax credit or avoiding an IRS headache later.

Third, don’t rely on the internet or sites like this for specific advice.  While we can offer thoughts and insights, only an accountant or attorney can offer advice specific to you or your clients.  Note that this posting does not contain any primary links to statutes or the IRS — this is an indication that it is not a source you want to rely upon to make a tax decision.  And that is our point — for you to NOT make any decisions based on this post (other than the decision to hire a professional!).

It would seem obvious that a well drafted contract with no contingencies that is signed by all parties on or before April 30th will meet the first deadline.  But few contracts are free of contingencies and some contingencies are more significant than others.  Consult your accountant or attorney if you have any questions about the tax credit and whether it applies to you or your client.

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The deadline for the First Time Home Buyer Tax Credit and the Long Time Home Buyer Tax credit is FAST approaching.  The deadlines are:

1.  The parties must enter into a “binding contract” on or before April 30, 2010; and

2.  The transaction must close on or before June 30, 2010.

This means you have just days or hours until Friday, April 30 2010 to enter a “binding contract.”  Lets get those offers signed!

NOTE:  The IRS has not defined “binding contract” and many parties have questioned the effect of contingencies.  For instance, short sales require bank approval.  When that approval is a contingency that has not been met prior to April 30th, is there a binding contract?  One would have a strong argument that the offer is binding (the lender is not a party and their approval is only a contingency), but it is the IRS and a court’s interpretation that will matter.  Consult an accountant and or an attorney if you or your clients have this issue.  See Our Blog Post on Short Sales and The Tax Credit.

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