Can A Tenant Keep You From Getting the Tax Credit On Your Minneapolis Tax Credit?

flying 100 dollarA reader recently asked a terrific question regarding the $8000 first time home buyer tax credit:

I have been recently considering a duplex as an option for my first home purchase. From I understand, the $8000 tax credit can be used for the part of the primary residence. For instance, a two-unit duplex at cost of $160k would yield the $8000 credit if I used one unit as the primary residence. What I have yet find an answer to is this: Let’s say the duplex is fully leased. You cannot force one tenant to move so in order to occupy one unit you would have to not renew one lease. If this is true and both tenants are leased through 2009 (and say until March of 2010) would you still qualify for the credit even though at the end of the tax year you would not be occupying the residence?

To be sure I had the correct I answer, I contacted Melanie Schlomann, a CPA with the firm of Abdo, Eich and Meyers.  “The home must be the taxpayers primary residence before December 1, 2009 to be eligible for the first time home buyer tax credit,” she said.

“In this case, the individual would not qualify unless they can manage to make the duplex their primary residence by that time.”

Whether you intend to owner occupy a duplex or simply purchase it as in investment, existing leases are an important consideration when you buy.

In order to address the afore-mentioned possibility, many duplex owners considering a potential sale of their property make sure to put a buy-out clause in their leases. This clause states that for a pre-determined fee, the tenant will agree to move if asked to do so as part of the sale of the property. Of course, it’s important to consult with an attorney for the appropriate language to use in the lease.

While negotiating a purchase, it may be worth asking whether or not the tenant is interested or willing to leave before the lease comes to an end.  If he knows he has to relocate in the not too distant future anyway, perhaps a win can be negotiated for all involved.

A buyer and her Realtor should also explore whether or not the city or state involved has any laws or ordinances pertaining to exactly this scenario.

While I don’t know of any Minnesota municipalities where this is the case (and would love to know if there are), the city of West Hollywood, California, for example, has a tenant relocation “through no fault of their own for owner or relative occupancy” ordinance, with a pre-determined set of move-out compensation for the dislocated tenant.

Great question!