Tax credit advice
To read more about the IRS rules for the three tax credits, visit its website. For answers to specific questions regarding a home sale, buyers should contact a tax advisor.
TAMPA, Fla. â€“ Sept. 17, 2010 â€“ The federal homebuyer tax credit did its job to boost the real estate market, but many involved â€“ from buyers to the IRS â€“ have run into problems with confusing wording and stipulations.
The result: Hundreds of thousands whoâ€™ve already filed for the credit will have to give the money back.
More than 2.6 million eligible for the credit have bought homes since July 2008. Theyâ€™ve received $19 billion in tax breaks.
But it turns out nearly half of those who received the money for the credit, claimed on their 2009 tax returns, will have to return it, according to an audit from the U.S. Treasury Inspector General for Tax Administration.
And a recording error could lead the IRS to ask tens of thousands more to return the money even though they are entitled to keep it.
This means anyone who bought a home in 2008 or later should make sure they applied for the correct credit and compensated accordingly. Paperwork should be checked, and buyers who are asked to repay need to double-check that, too.
Apparently, some mistakenly thought they qualified. Others tried to cheat the system, and the IRS failed to catch them until after the checks cashed.
About 950,000 of the nearly 1.8 million Americans who claimed the tax credit on their 2009 return should not have received the money.
Part of the confusion was because homebuyers were eligible for two different types of credits, depending on when their homes were purchased. The governmentâ€™s first version of the credit was a no-interest loan of up to $7,500. It was required to be paid back over 15 years.
Congress eliminated the repayment requirement for homes bought in 2009, but those who claimed the credit for homes purchased in 2008 will still be required to repay it, beginning when they file their 2010 income tax return. Some who bought in 2008, the audit said, tricked the IRS into granting them the credit by lying about their closing date on their application.
But the IRS caused part of the problem. Apparently, it recorded the wrong home purchase date for about 73,000 that claimed the credit. That could mean some will be asked to pay back money they werenâ€™t required to repay, the report said.
Here are some things to keep in mind if you havenâ€™t yet claimed your credit or if youâ€™re checking your paperwork.
â€¢ You donâ€™t have to wait to claim your credit on your 2010 return if you bought this year. If you purchased a home before the April 30 deadline, you can amend your taxes to claim the credit.
â€¢ There are two credits available. One is for first-time buyers or those who have not owned a home in the past three years. The maximum for this credit is $8,000 and does not have to be paid back. It applies to purchases made this year between Jan. 1 and April 30.
â€¢ Some buyers who already owned homes can claim a credit worth up to $6,500 for purchases made between Nov. 7 and April 30. To qualify, the buyer must have owned a primary residence for at least five consecutive years out of the past eight years. This credit also does not need to be paid back.
â€¢ There are income and price requirements. If the home was purchased after Nov. 6, it can cost no more than $800,000. Also, if purchased after that date, individuals cannot earn more than $125,000 and married couples filing jointly cannot earn more than $225,000.
â€¢ If youâ€™re claiming the credit, a paper filing is necessary. Only taxpayers not claiming the credit can file electronically. Buyers can still use electronic forms, but must print them out and mail them in, along with form 5405.
â€¢ Buyers must prove they are eligible. Youâ€™ll need to send a copy of the HUD settlement statement along with the tax form. If youâ€™re claiming the longtime owner credit, also include proof, such as copies of mortgage interest statements, property tax records or homeownerâ€™s insurance records.
â€¢ The credit is for your primary home. If you decide to rent or sell the home within three years, the credit must be repaid.
Copyright Â© 2010 Tampa Tribune, Fla., Shannon Behnken. Distributed by McClatchy-Tribune Information Services.