Little Known Facts About the Home Buyer Tax Extension
Whether your applying for the $8,000 tax credit or the $6,500 tax credit, you need to be aware of several important pieces of information:
You have to be in a binding agreement of sale by April 30th, 2010. Furthermore, it has to be signed by all parties involved and date stamped. This also applies to bank owned properties; meaning the bank has to have approved and/or signed off on the contract. The purchase has to be completed/closed by June 30th, 2010.
Since the extension of the tax credit on 11/6/2009 there has been much confusion surrounding this issue. According to several well-known CPA’s the IRS is literally writing the “refund rules” as they go along. Recent headlines have indicated that the IRS is giving behind-the-scenes instructions to CPA’s and tax advisors on how to properly file for the homebuyer tax credit after Nov. 6th, 2009. This information has not been made available to the general public yet.
One of the surprising changes is the buyers cannot file a 1040 EZ to claim the tax credit; nor can they file the returns electronically.
These rules were implemented to stop fraudulent tax credit refunds. The IRS never had a system in place to determine whether or not a person previously owned a home, or was claiming a mortgage-interest deduction. Rumor has it that the IRS is finally using new software to catch previous homeowners that are trying to fraudulently claim the tax credit (thankfully!).
In addition, the IRS is now requiring a HUD-1 ( settlement statement) to be attached to the 5405 form. Here is a link to the revised form: http://www.irs.gov/pub/irs-pdf/f5405.pdf. This form cannot be attached electronically either.
The IRS is also telling tax advisors to expect an average turnaround time of 16 weeks (yikes!). Once the IRS receives the filing they can also ask for additional documentation on amended returns (drivers license, settlement statement, etc) – so make sure you are organized.
Tax advisors need to set realistic expectations when filing such returns, and explain to their clients that the return can be delayed for several months. This is important information, as many buyers plan on using these funds immediately and need to be made aware of the new changes and potential delays.
Fortunately, the tax credit has been a wonderful catalyst for the purchase market. A survey conducted by the National Association of Realtors (NAR) indicates 47% of all home sales in 2009 were to first-time buyers. This is the highest percentage on record dating back to 1981!
In sum, do not let the “bad news” discourage you. For more information on the recent updates review these links:
http://www.irs.gov/newsroom/article/0,,id=215827,00.html?portlet=7
