We got some clarification on some issues relating to the Home Buyer Tax Credit on Friday, when the IRS issued a series of new documents relating to the credit:
- The new IRS Form 5405, which is the tax return form you need to file for your tax return.
- Instructions for Form 5405, which provide clarification and explanation for the form.
- An explanatory press release with some warnings and advisories for taxpayers regarding the new credit.
Luckily for people like me, the IRS didn’t really explain things all that well, so I’m not out of a job.
Here’s the breakdown of the five things you need to know about the new IRS advisories and publications.
1. The New Form.
First, take a look at IRS Form 5405. This is the form that you need if you are going to claim the tax credit on either your 2008 taxes (through an amendment to the return you filed in April 2009) or on your 2009 taxes that are due April 15th. People have been waiting for this form impatiently, particularly those who closed late in 2009 and wanted to amend their 2008 returns to claim the credit. (Those people should pay careful attention to Section IV of the new form).
2. Be prepared for delays.
Unfortunately, the people who have been waiting are going to have to be patient a little longer. The IRS warns that it will not start processing 2009 returns until mid-February, in order to test the new systems, and further warns that early taxpayers may have to wait an additional two or three weeks beyond that for their refunds. It does not expect tax credit-based refunds to go out until the “end of March.”
3. You CANNOT file electronically.
This is important: if you want to claim the tax credit, you CANNOT file electronically. You have to file a paper return, because the IRS is going to want to see documentation of your purchase, and of your eligibility. It’s an irritation, but it’s a necessary evil if the IRS is going to prevent the fraud that took place under the prior tax credit legislation that did not require documentation. You can still file through “Free-File,” but you’ll need to print your returns out.
4. Be ready to document your purchase.
Be prepared for the documentation you will need for that paper return to prove the details of your purchase. The IRS specifically identifies the following:
- If available, as it should be for most purchases, a copy of your HUD-1 settlement statement showing all the parties’ names, signatures, the address, sales price, and date of purchase.
- If you are purchasing a mobile home, you’ll need a copy of the executed sales contract with all the parties’ names, signatures, property address, purchase price, and date of purchase.
- If you are building your own home, you’ll need a copy of the certificate of occupancy.
The smart people at the Washington Post Local Address Blog, and the great CNN Money blog, also suggested that buyers pull together the following:
A signed mortgage statement showing your new address.
- A driver’s license with your new address.
- A bank statement with your new address.
- A pay stub with your new address.
The lawyer on your closing, or your escrow agent, will get some of these materials for you, you’ll have to get the others (like your driver’s license).
5. Be ready to document your sale if you are a long-time homeowner.
If you are eligible for the Home Buyer Tax Credit as a long-time homeowner, you’ll need to document the bona fides of your claim to have lived in a home you owned for five consecutive years out of the last eight. The IRS is making it very clear that they are going to be doing compliance checks on those claims, and that taxpayers should document their residency to avoid delays. Some suggestions from the IRS:
- Mortgage interest statements.
- Tax records.
- Insurance records.
I don’t think anyone means to suggest that you need ALL those documents, but the more you append to your tax return the less likely you are to experience delays or requests for supplementary documentation.
If you have any questions, just post them here or in the Questions section. Probably better to do it here, so it sticks with the links.
I bought my place in march of 2006. I am a first time home buyer.Am i able to qualify for this.I also refinanced in January 13 2009.I have all my documents.
Hi @Amy, thanks for posting your question. I’m a little confused because you say that you bought your place in March 2006, AND are a “first time home buyer.” I guess maybe you mean that your March 2006 purchase was your first home buying experience. Unfortunately, under these facts, you would not be eligible for either the first-time home buyer tax credit or the “step-up” credit for long-time homeowners. The reason is that you have not owned your current place for the requisite five consecutive year period, since you only bought it in March 2006 (that gives you upwards of 4 years this upcoming March). And you’re not a first-time home buyer if you currently own that place you bought in March 2006, because to qualify as a first-time you can’t have owned a home within the three years prior to closing — and you apparently own your own home now. Sorry to be the bearer of bad tidings. Let me know if I’m misunderstanding your question, though.
By the way, refinancing doesn’t matter at all. You can refinance all you want. The issue is whether you’ve owned your own place, and for how long.