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Friday, March 19, 2010

2009 Home Buyer Tax Credit: First Time Homebuyer and Repeat Home Buyer

CPA Shares Little-Known Facts About the 2009 Home Buyer Tax Credit Extension

Like most government legislation, the Nov 6, 2009 homebuyer tax credit extension created more questions than answers. However, according to Doug Geissler, a certified public accountant, the Internal Revenue Service is literally writing the "refund rules" as they go along.
Unbeknown to homebuyers, real estate agents and the mortgage industry, the IRS is giving behind-the-scenes instructions (that are not available to the general public) to CPAs and tax advisors on how to file for the homebuyer tax credit after Nov. 6, 2009. It will be completely different than what you might have advised your clients previously-and your clients are not going to like these changes!

The first shocker?
  • Your clients cannot file a 1040 EZ to claim the tax credit. Nor can they file tax returns electronically if claiming the tax credit.Why no electronic filing or 1040 EZ forms? It's the first step in stopping fraudulent tax credit refunds. Believe it or not, the IRS never had a way to determine if a person owned a home-no auditing software in place-to determine if they previously claimed a "mortgage interest" deduction within a three-year time period. The IRS is building auditing software now to "catch" previous homeowners who are trying to claim a FTHB tax credit.
  • Secondly, the IRS now requires that the HUD-1 or closing statement be attached to the 5405 form (and that cannot be attached electronically). Here's the link to the 5405 Revised Form dated December 2009:
And to give them time to audit the document, the IRS is telling tax advisors to expect an average of a 16-week turn around time-which means that it could either be the refund or a request for additional documentation. Mr. Geissler says that one of his clients recently received an IRS notice, requesting a letter from a landlord, a copy of a driver's license and the closing statement on an amended tax return where the client was claiming the FTHB tax credit. Yes, the new law allows them to ask for additional info on amended returns.

So, what means, that if your clients is expecting an income tax refund and a homebuyer tax credit refund, both refunds could be held up for several months.

We all know what adjusted gross income is, right? But did you know that there are over 20 different "modified adjusted gross income" interpretations for different tax forms and credit tax claims?

In regard to the homebuyer tax credit, the simple explanation is that is Line 38 on the 1040 form (remember, no 1040EZ to claim this tax credit). However, if IRS Form 2555 (Foreign Earned Income) or IRS Form 4563 (Exclusion of Income from Bona Fide Resident of American Samoa) is attached, this income has to be added to line 38 to determine if the clients meet the maximum income limits of $125,000 or $225,000. While this might not apply to very many clients, it's something you can counsel your client about if they claim foreign income to qualify for a loan.