Putting the homebuyer credit to rest

It's really happening. The first-time homebuyer credit is on its final hours.  

After today, the $8,000 tax break for folks who are buying their first home (as defined by the IRS) and $6,500 credit for those who owned a place for five consecutive years and decided to buy another one is erased from the tax code.

If you were able to take advantage of this tax break by getting in under the April 30 wire, you still have until June 30 to close on your home.

And all home purchasers who claim the credit will eventually have some filing specifics to attend to.

When to  claim it: First, even if you bought your credit-qualifying home this year, you can opt to claim it on your 2009 taxes instead of your 2010 return.

If you filed for an extension last month, that gives you until Oct. 15 to complete you 2009 taxes and take the credit.

Or if you bought a house after you filed your 2009 taxes, you can amend them to take the credit.

But if you'll save more on taxes by claiming the credit next year on your 2010 taxes, then you're definitely allowed to wait and do that.

Proving your tax credit worthiness: Regardless of when you claim the credit, you'll have to fill out Form 5405.

And you'll have to prove to the IRS that you and your property are eligible.

This requirement was added as part of the extension of the homebuyer credit in the February 2009 stimulus bill. The verification issues came up because some people who didn't qualify were getting nice chunks of change from Uncle Sam anyway.

So be sure to hang onto or dig out your settlement sheet, showing all home sale/purchase parties' names and signatures, property address, sales price and date of purchase. It's the documentation preferred by  the IRS when it examines credit claims, so send a copy of that HUD-1 sheet along with your 5405 and 1040 when you file.

If you bought a mobile home and didn't get a settlement statement, the IRS will take a copy of the executed retail sales contract showing all parties' names and signatures, property  address, purchase price and date of purchase.

And if you had your home built and there's no settlement statement available, the IRS would like a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.

Repeat buyer requirements: Don't feel like the IRS is picking on you because you're a first-time buyer. The agency also wants proof that repeat buyers qualify for their $6,500 tax break.

To claim this amount, you must have lived in a home as your principal residence for five straight years during an eight-year period ending on the day you bought your new home. And no, it doesn't necessarily have to be the last house you lived in before buying the one that's eligible for the credit.

Say you owned and lived in a home from May 1, 2004, through May 1, 2009. That's five straight years. 

Then you sold that house and rented an apartment while you explored real estate options.

You finally found your dream home and bought it on Feb. 1, 2010.

Since you owned and lived in a home for five consecutive years (2004 to 2009) in the eight years from Feb. 1,  2002, to Feb. 1, 2010, you're eligible for the move-up buyer credit.

You can show you spent the requisite time in the previous house by sending along with your credit claim documentation from that five-year home-owning period. This could be:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
  
• Property tax records or 
  
• Homeowner's insurance records.
  

Paper only, please: Also remember that because of the documentation requirements, you must file your tax return the old-fashioned way, that is, by mailing in paper forms and attachments.

The reason for the retro filing is because the IRS isn't equipped to accept scanned verification material.

But that's probably not a bad thing, given how creative some people can be with Photoshop!

Related posts:

• 'Successful, costly' first-time-plus homebuyer credit ending
• The federal homebuyer credit's 'exit strategy problem'
• Homebuyer credit semantics
• House hunting? Check out tax credit
• The home buyer credit's three E's: extension, expansion and effective date
• $10 billion paid out in home buyer claims, but how many were bogus?

Want to tell your friends about this blog post? Click the Tweet This or Digg This buttons below or use the Share This icon to spread the word via e-mail, Facebook and other popular applications. Thanks!

Comments

[Tom Scanlon, CPA, CFP®]

Kay,

Good post.

The first time (sort of) first time homebuyers’ credit got the most publicity for assisting the housing market. Now it’s gone.

What also helped the housing market was the government buying up mortgage bonds. This is also over.

The last of the big three to support housing is low interest rates. This is still in play, for now.

It will be interesting to see what direction the housing market heads when two of the three main support mechanisms have been removed.

Regards,

Tom Scanlon, CPA, CFP®