Taxpayers filing for the homebuyer tax credit had better have all their verifying docs in a row if they expect to collect the windfall of up to $8,000.
Even with the correct documents, home buyers seeking the extended and expanded tax credit can't file electronically. So they can expect to wait to get their credit or any refund several weeks longer than taxpayers who aren't filing for the credit.
To weed out fraud, the Internal Revenue Service recently released a new form, IRS Form 5405 "First-Time Homebuyer Credit and Repayment of the Credit," along with instructions, IRS Form i5405, which explain new documentation requirements.
In November, President Barack Obama signed legislation that extended the first-time homebuyer tax credit until April 30, 2010 (until April 30, 2011, for military personnel), and expanded the credit to include other eligible buyers.
The credit is worth up to $8,000 for eligible first-time home buyers (taxpayers who have not owned a principal residence during three years prior to buying a home). Qualifying existing home buyers can get up to a $6,500 credit if they buy a new primary residence or have one built at a cost of no more than $800,000. Second homes don't qualify.
A tax credit reduces the amount of taxes owed. The homebuyer tax credit is a refundable credit. Taxpayers who owe little or no taxes get the credit as a partial or full refund.
The new law also raised the qualifying income limits to $125,000 for single taxpayers and $225,000 for joint taxpayers. The previous limits were $75,000 and $150,000, respectively.
Home buyers have to repay the credit if they live in their primary residence less than 36 months and are not members of the military.
The new tax filing rules for the homebuyer tax credit seek to avoid a repeat of the 90,000 taxpayers -- including nearly 600 children -- investigated as fraudulently filing for the credit, and hoodwinking the government out of more than $600 million, according to a report by the Treasury Inspector General for Tax Administration.
The extra documentation required means taxpayers claiming the home buyer credit must file a paper tax return.
In addition to filling out a Form 5405, all eligible home buyers must include with their 2009 tax returns at least one of the following documents in order to receive the credit:
A copy of the HUD-1, Settlement Statement (Effective Jan. 1, 2010: HUD-1, Settlement Statement), showing all parties' names and signatures, property address, sales price and date of purchase.
For mobile-home buyers, unable to obtain a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
For new home buyers who don't get a settlement statement, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.
Existing home owners applying for the $6,500 maximum tax credit for buying another home must show they lived in their old home for five consecutive years during the eight years prior to the purchase date of the next home.
When filing for the tax credit, existing home owners must include IRS Form 1098, "Mortgage Interest Statement" (IRS Form i1098 offers instructions), or substitute mortgage interest statements, or property tax records or homeowner's insurance records. A smart taxpayer will consider sending all those documents to avoid any confusion.
Taxpayers can use personal computer tax software or IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.
The IRS won't begin processing returns claiming the homebuyer tax credit until mid-February because it's testing the system to ward off fraud.
Taxpayers seeking the homebuyer tax credit and due a refund will have to wait four to eight weeks if they file with all the required documents. The earliest tax return filers can expect homebuyer tax credit refunds by the end of March, the IRS says.
Using direct deposit will speed the refund, and taxpayers can use the IRS' "Where's My Refund?" online service to track the status of their refund.
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