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Department Proposes Administrative Regulation and Promulgates Emergency Regulation Regarding New Home Tax Credit

08.08.2009

The Kentucky Department of Revenue (“Department”) recently proposed Administrative Regulation, 103 KAR 17:150 (“Regulation”), explaining the application, filing and recapture guidelines for the new home tax credit provided by KRS 141.388. The Department simultaneously promulgated the same regulation as an Emergency Regulation, 103 KAR 17:150E, which is effective immediately. The Department stated that the Regulation’s guidance was needed immediately in order for taxpayers to “make timely and accurate filing of tax returns and payment of the correct amount of tax due.”

KRS 141.388 provides a one time, nonrefundable new home tax credit of five thousand dollars ($5,000) against the tax imposed by KRS 141.020 for “qualified buyers.” “Qualified buyer” is defined in KRS 141.388 as a resident who (1) purchases a qualified principal residence; and (2) is not eligible to receive the first-time homebuyer credit allowable under Section 36 of the Internal Revenue Code of 1986, as amended. “Qualified principal residence” means a single family dwelling which is: (1) either detached or attached; (2) certified by the seller as having never been occupied; and (3) purchased to be the principal residence of the qualified buyer for a minimum of two (2) years. The purchase of a qualified principal residence must be made between July 26, 2009 to July 25, 2010.

The Regulation sets forth further guidelines for determining “principal residence.” It provides that in the case of a qualified buyer using more than one (1) property as a residence, the residence used for a majority of the time shall be considered the “principal residence.” The Regulation also provides a list of factors for determining principal residence when a qualified buyer resides at more than one (1) property in equal amounts of time.

The Regulation further provides guidance for recapture and allocation of the new home tax credit. It provides that if the qualified buyer does not maintain the new home as his or her principal residence for two (2) years from the date of purchase, the qualified buyer shall file an amended return for the taxable year of the purchase and pay the amount of credit taken as tax due, plus any applicable interest. Each qualified co-purchaser that fails to maintain the new home as his or her principal residence for two (2) years shall be liable for the amount of tax and interest due in an amount based on the co-purchased percentage of ownership of the qualified principal residence.

The Regulation incorporates by reference the application for the new home tax credit, Form 40A103, which must be completed and sent to the Department within seven (7) calendar days from the purchase of the new home.

If you have questions about this topic or any other legal issue, please contact any member of the firm's State and Local Tax Team.

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