As we head towards a major deadline for the popular $8,000 home buyer tax credit, we’ve been asked a number of times by real estate agents and mortgage professionals whether buyers need a signed offer to purchase or signed purchase and sale agreement by the upcoming April 30th tax credit deadline. We’re advising that buyers need a signed purchase and sale agreement by the deadline, as explained below.
In order to qualify for the $8,000 federal home buyer tax credit, the IRS states that buyers need to sign a “binding contract” for the sale by April 30, 2010.
In Massachusetts, there is a two-part system for real estate contracts. The parties first sign an Offer To Purchase, then about 2 weeks later, they sign a more comprehensive Purchase and Sale Agreement. Under the Massachusetts case of McCarthy v. Tobin, a signed standard form Greater Boston Real Estate Board Offer To Purchase may be considered a valid and binding contract even though a purchase and sale agreement must be signed at a later date. However each transaction/offer is unique and may have contingencies or future considerations which take it out of this case law rule. And remember, most of these types of cases are litigated in the courts, so it’s really fact-specific.
Under IRS rules, to claim the $8,000 credit, the buyer will have to attach to their tax return a copy of the “binding contract” showing an execution date on or before April 30, 2010. We just don’t know whether the IRS will interpret a signed Offer To Purchase as a “binding contract.” There is no question a signed Purchase and Sale Agreement is sufficient. However, there’s a risk that the IRS could reject reliance on a signed Offer to Purchase or it could delay qualification for the credit. This is a new rule so we just don’t know how the IRS will interpret it, and that raises a risk.
Accordingly, the prudent approach is to have all buyers claiming the credit sign a purchase and sale agreement by April 30th. That is what we are advising our buyers, their Realtors and loan officers. We are also now inserting a special tax credit provision in purchase and sale agreements protecting the buyer’s eligibility for the credit.
Of course, our office is well-equipped to get a Purchase and Sale Agreement completed and signed by the Friday deadline. We’ll be working around the clock this week for our buyers and sellers! Contact us at 508-620-5352 or by email.