Thanks for your comment! Unfortunately, my understanding of your situation is that since you did not origanally purchase an interest in the property, that you are not eligible for any portion of the tax credit – and since your fiance does not qualify either, neither of you may claim the credit. Here’s an excerpt from the IRS:

Example 3
On April 15, 2008, A pays the entire $100,000 purchase price of a residence and
is the sole owner. Under § 36(b)(1)(A), the allowable credit is not $10,000 (10 percent
of the purchase price) but is limited to $7,500. On May 12, 2008, A transfers a one-half
interest in the residence to B as a tenant in common for $10,000. A may claim the
entire allowable $7,500 credit. Because B acquired B’s interest in the residence from A
in part by gift, B’s basis in the residence is determined under § 1015 by reference to A’s
basis in the residence. Therefore, B did not purchase an interest in the residence within
the meaning of § 36(c)(3), and no portion of the credit may be allocated to B because B
is not eligible to claim any portion of the credit.

Mellisa

I’m happy to answer your questions! Congratulations on being able to take advantage of the tax credit!
You are correct about the credit being based on the owner occupied portion of the property. If you and your sister bought the duplex as a single purchase, and you are both in title, you will be eligible for the whole $8,000 credit, since the whole property is owner occupied, but it would be split between you. The only way you would each qualify for the credit is if the duplex were two units sold separately, and you and your sister purchased them independently of each other.

Please be sure to consult with a professional tax advisor regarding your situation, especially since filing your taxes for 2009 will be a little bit more complicated due to your joint purchase! I wish you the best.

Mellisa

My understanding of how the tax credit is applied to properties is based on the percentage of owner-occupancy, not the actual number of units. So, you should be able to receive the entire 10% – keep in mind that you may need to provide proof that the property is not being rented. There would be penalties if subsequent tax returns showed rental income.
As always, but especially in this case, definitely consult with your tax professional regarding the tax implications of this situation. And congratulations on your purchase! Let me know if you have any other questions.

Thanks for the comment! It is indeed difficult to find information regarding the tax credit and it’s implications for multi-family purchases – if you go to http://www.irs.gov and find form 5405 you will find the following definition of homes qualifying for the tax credit:

Main home. Your main home is the one you live in most of the time. It can be a house, houseboat, house trailer, cooperative apartment, condominium, or other type of residence.

To determine the way the tax credit would be calculated, I contacted my tax professional, who has specifically contacted the IRS to get more information, and this is the explanation that was received.

I’ll be happy to help provide you with any other information! Hope this helps!

Though I’ve read and heard from many creditable sources that a duplex indeed qualifies. Where are you finding the information that explains the tax credit for multiple units (percentage of “owner-occupied” space)?

I have been trying to find a source for that information and I have not yet. Any information would be helpful.
Thanks,

Cam

Thanks for the question! The tax credit is based on 10% of the purchase price, or $8,000, whichever is less, and in the case of multiple units, the credit will be based on the percentage of “owner-occupied” space (50% with a duplex). So, the purchase amount of a duplex would have to meet or exceed $160,000 for the purchaser to be able to qualify for the entire $8,000 credit. ($160,000/2=$80,000. 10% of $80,000 is $8,000.)

So, if you meet these criteria, you will qualify for the entire tax credit as a purchaser of a duplex. Hope that helps!