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The Miami Herald - WASHINGTON REPORT
Only five months left for that home tax credit
The IRS has finally published the rules for the repeat purchase credit along with details for taxpayers.
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Move quickly if you qualify for ‘move up’ credit
Move quickly if you qualify for ‘move up’ credit
Take a close, hard look at the new $6,500 federal tax credit for so-called “move up” homebuyers that passed the Senate and House last week. Though it’s been getting second billing to the original $8,000 credit for first-time purchasers — now extended by Congress through next June 30 — the $6,500 credit for current homeowners just might have your name on it.
How does it work? When will it be available?
First things first: The new credit is available now. It took effect the day President Barack Obama signed the legislation creating it — Nov. 6. This means that if you fit the key criteria — you’ve owned and resided in your current home for a consecutive five out of the past eight years, and your adjusted household income doesn’t exceed $125,000 if you file taxes singly, $225,000 if you are married and filing jointly — you can claim the credit as soon as you close on a qualifying house.*
Wait to apply for that homebuyer tax credit
Wait to apply for that homebuyer tax credit
If you’re thinking about applying for the new $6,500 homebuyer federal tax credit or the extended $8,000 version, here’s some news: The IRS has just issued its first formal guidelines for you.
Tops on the agency’s list of advice: Cool it for a couple of weeks. Even if you qualify for one of the credits, don’t send in any requests to the IRS quite yet. Wait until later this month when the agency publishes its revised Form 5405 with all the key instructions needed to get you a check from the government.
The forthcoming version of the form will incorporate the major changes to the tax credit program made by Congress in legislation signed by President Barack Obama on Nov. 6. These include expanded income limits, a cap on home prices, additional documentation requirements and prohibitions against claims by dependents, among others.
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Sorting through the homebuyer tax credit
Sorting through the homebuyer tax credit
If you bought a home in 2009, you could be eligible for a tax credit. Figuring out which one can be confusing.
There’s one credit for first-time homebuyers and another that primarly benefits homebuyers who owned a home before. But don’t mix it up with the first-time homebuyer credit in 2008, which actually was a long-term loan.
There are maximum income levels and maximum sales prices. And vacation homes or rental property don’t qualify.
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Economic incentives aid taxpayers
Economic incentives aid taxpayers
The deep recession that hung over the nation in 2009 has led to new tax credits and deductions - attempts by Congress to boost consumer spending and get the economy moving again.
These, along with increases in the standard deduction, personal exemption and alternative minimum tax exemption, may bring a little extra cash to some people during these economic hard times.
Lawmakers tried to aid the ailing auto industry by producing a new deduction for sales and excise taxes incurred in the purchase of a new car. That’s on top of the Cash for Clunkers program, which brought hundreds of thousands of people into auto showrooms around the country.
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Don’t play games with the IRS on tax credits
Don’t play games with the IRS on tax credits
The IRS has an urgent message for would-be home purchasers: Make the most of the $8,000 first-time buyer tax credit before it disappears Dec. 1 — if you qualify.
But if you don’t truly qualify, don’t try to play games with the credit. The IRS already has 24 criminal investigations of suspected fraud under way around the country. It has executed seven search warrants and last month a tax preparer in Florida entered a guilty plea on federal charges of fraud in connection with the first-time buyer credit. He’s awaiting sentencing and faces up to three years in prison, a $250,000 fine, or both.
Congress’ two versions of the first-time buyer credit — a repayable $7,500 credit in 2008, and this year’s more generous $8,000 nonrepayable credit — have stimulated home sales nationwide. But they’ve also become irresistible temptations for dishonest taxpayers to cash in and claim bogus refunds.
BY KENNETH HARNEY
If you’ve been holding back on getting involved with the new $6,500 federal tax credit for repeat home purchases, there’s no more excuse for inaction. You now have all the official IRS guidance you’ll need to go out and buy a house, qualify for the credit, and pocket the $6,500.
That’s because the IRS finally published the rules for the repeat purchase credit along with the key details for taxpayers that had been missing since President Barack Obama signed the legislation creating the program on Nov. 6.
On Jan. 15, the IRS posted its revised Form 5405 on its website (www.irs.gov), six weeks after warning taxpayers not to file claims for the $6,500 credit without using the revised form and new instructions.
The repeat buyer credit — inelegantly dubbed the “longtime resident of the same main home” credit by the IRS — supplements the popular $8,000 credit for first-time purchasers. Owners of existing homes — specifically taxpayers who have occupied the same property as a principal residence for any five consecutive years during the previous eight years — may now be able to claim a tax credit on a purchase of another house they intend to use as a principal residence.
The credit is for up to 10 percent of the price of the replacement home, capped at $6,500. The purchase contract must be dated anywhere from Nov. 7, 2009, to April 30, 2010, and the closing must occur no later than June 30, 2010. Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.
The maximum purchase price on houses eligible for the credit is $800,000. Purchasers are not required to sell their previous house, but they must be able to demonstrate that the replacement house they buy is or will be their principal residence.
The new IRS guidance answers key questions that had been uncertain from the legislative language alone. For example, it describes what documentation homebuyers must submit along with their $6,500 credit claim. On 2009 and 2010 tax returns, buyers should attach:
• A copy of the signed HUD-1 settlement sheet, including contract sale price and date of closing. This is to document that the timing of the transaction meets the program’s requirements.
• Evidence of long-term ownership and occupancy of the previous house to meet the five consecutive years test. This can be property tax records, homeowners’ insurance records, or IRS Form 1098 interest statements for the five-year period.
• For buyers claiming a credit on a newly constructed home, where a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the purchasers’ names, the property address and date.
• For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property’s address, purchase price and date of purchase.
All this extra documentation was required by Congress following reports that audits had uncovered widespread abuses by first-time buyers seeking the $8,000 credit. Among these were fictitious home purchases where taxpayers or tax preparers sought — or obtained — credits on properties that never were sold or bought. This time around, the IRS says it is going to rigorously investigate all claims filed, starting with a review of the documentation submitted.
The new IRS guidance also spells out the revised income limits for homebuyers claiming credits: Your modified adjusted gross income must be $125,000 or less if you are single, $225,000 or less if you are married filing jointly. Above these limits, the allowable credit amount begins to phase down in increments, and is eliminated completely once incomes hit $145,000 for singles and $245,000 for married joint filers.
There are pitfalls as well: An advisory posted by the IRS earlier in the month spelled out situations where recipients of tax credits may have to repay them to the government. These include taxpayers who sell their houses within a 36-month period after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the house.
With all the rules now available, here’s the action message to potential tax-credit seekers: Speed up your search for the house you want to buy. Get moving. There are only 14 weeks to sign a contract and just five months to go to closing.
Kenneth Harney is executive director of the National Real Estate Development Center.
JILL PENMAN
REALTOR, Coldwell Banker | PRINCIPAL, Charming Miami Homes Network
P: 305.807.9199 | F: 305.667.0548| E: jill@jillpenman.com
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Filed under: Tax Credit 2010 on January 25th, 2010 | 6 Comments »
