New Homebuyers Credit Rules and Tax Filing

The IRS has recently released Form 5405, the form that will be needed by elgible homebuyers to claim the first-first time homebuyer credit this tax season. Processing of those tax returns will begin in mid-February after the IRS completes the updating and testing of systems to meet the law’s new requirements. The updates will allow the IRS to put in place critical systemic checks to deter fraud related to the credit.

In addition, there has been an announcement that new document requirements will help deter fraud previously related to that credit. The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new
law extended the credit to a broader range of home purchasers and added the new requirements. Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.

• For mobile home purchasers who are unable to get 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 a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show

• That they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home.

• The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

o Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements

o Property tax records or

o Homeowner’s insurance records.

If properly filed, those homebuyers filing early can expect the first refunds based on the homebuyer credit will be issued toward the end of March.

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