Taxpayers who purchased their home through their subchapter S corporation could not claim a first-time homebuyer credit when they filed their federal income taxes, the U.S. Tax Court has ruled in upholding a deficiency determination.
The taxpayers are a married couple and the only shareholders of a subchapter S corporation. For the 2009 tax year, they claimed an $8,000 first-time homebuyer credit on their principle residence pursuant to §36 of the Internal Revenue Code. Generally, the statute authorizes the credit for any “individual” who didn’t own a home during the three-year period preceding the purchase for which the credit is claimed.
The IRS disallowed the credit because the taxpayers had purchased their $327,000 home through their subchapter S corporation. The company paid most of the purchase price and retained title to the property.
The court agreed that neither the taxpayers nor their company could claim the credit.
“[The taxpayers] are individuals, they are the shareholders of [their company], and they reside in the property. They are the only persons who may claim the tax credit. They are not entitled to the tax credit, however, because they did not purchase the property. [Their company] purchased the property. [The company] is not entitled to the tax credit because it is not an individual under §36,” the court said.
U.S. Tax Court. Trugman v. Commissioner, No. 7466-11.