IRS finally releases new form for first-time buyer and repeat-buyer tax credits

If you've been holding back on getting involved with the new $6,500 federal tax credit for repeat home purchases or $8,000 credit for first-time buyers, there's no more excuse for inaction. You now have all the official IRS guidance you'll need to buy a house, qualify for the credit and pocket the money. (To download the form, click here).

That's because the Internal Revenue Service finally published the rules for the repeat-purchase credit, with key details for taxpayers that had been missing since President Obama signed the legislation creating the program Nov. 6.

On Jan. 15, the IRS posted its revised Form 5405, six weeks after warning taxpayers not to file claims for the credits without using the revised form and new instructions.

The $6,500 credit -- inelegantly described by the IRS as credit for the "long-time resident of the same main home" -- supplements the popular $8,000 credit for first-time purchasers. Owners of existing homes -- specifically, taxpayers who have occupied the same property as a principal residence for five consecutive years during the previous eight years -- may now be able to claim a tax credit on a purchase of another house they intend to use as a principal residence.

The credit is for up to 10 percent of the price of the replacement home, capped at $6,500. The purchase contract must be dated from Nov. 7, 2009, to April 30, and the closing must occur no later than June 30. Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.

The maximum purchase price on houses eligible for the credit is $800,000. Purchasers are not required to sell their previous home, but they must be able to demonstrate that the replacement house is or will be their principal residence.

The new IRS guidance answers key questions that had arisen from the vague language in the legislation. For example, the IRS describes what documentation home buyers must submit with their $6,500 credit claim. On 2009 and 2010 tax returns, buyers should attach the following:

-- A copy of the signed HUD-1 settlement sheet, including the contract sale price and the date of closing. This is to document that the timing of the transaction meets the program's requirements.

-- Evidence of long-term ownership and occupancy of the previous house to meet the five-consecutive-years requirement. This can be property tax records, homeowner's insurance records or IRS Form 1098 mortgage interest statements for the five-year period.

-- For buyers claiming a credit on a newly constructed home, for which a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the purchasers' names, the property address and the date.

-- For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property's address, purchase price and date of purchase.

Congress mandated all this extra documentation after audits uncovered widespread abuses by applicants for the $8,000 credit. Among these were fictitious home purchases in which taxpayers or tax preparers sought -- or obtained -- credits on properties that never were sold or bought. This time around, the IRS says it will rigorously investigate all claims filed, starting with a review of the documentation submitted.

The new IRS guidance also spells out the revised income limits for home buyers claiming credits: Your modified adjusted gross income must be $125,000 or less if you are single, $225,000 or less if you are married and filing jointly. Above these limits, the allowable credit amount begins to phase down in increments and is eliminated once incomes hit $145,000 for singles and $245,000 for married joint filers.

There are pitfalls as well: An advisory posted by the IRS this month spelled out situations in which recipients of tax credits may have to repay them to the government. These include taxpayers who sell their houses within 36 months after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the house.

With all the rules now available, here's the action message to potential tax-credit seekers: Speed up your search for the house you want to buy. Get moving. There are only 14 weeks to sign a contract and just five months to go to closing.

I didn't forget you, but perhaps the IRS has!

On December 8 I posted a brief tidbit telling you that the IRS was coming out with a new 5405 form in a few weeks. This is the form that is needed for first-time homebuyers to receive the $8,000 tax credit. Well, as of today, the new form still has not been released. No worries, keep checking this blog --or better yet, subscribe to it. I will post it as soon as it is released!

Below is the IRS' promise and brief explanation:

A new version of Form 5405, First-Time Homebuyer Credit, will be available in the next few weeks. A taxpayer who purchases a home after Nov. 6 must use this new version of the form to claim the credit. Likewise, taxpayers claiming the credit on their 2009 returns, no matter when the house was purchased, must also use the new version of Form 5405. Taxpayers who claim the credit on their 2009 tax return will not be able to file electronically but instead will need to file a paper return.

A taxpayer who purchased a home on or before Nov. 6 and chooses to claim the credit on an original or amended 2008 return may continue to use the current version of Form 5405. (You can get the current version of the form by clicking here)

First-Time Buyer Tax Credit Extended & Expanded Today

Congress passed legislation expanding an $8,000 tax credit for first-time homebuyers today on a 403-12 vote.

The legislation now goes to President Barack Obama, who will sign it tomorrow, according to spokeswoman Jen Psaki. All 12 House members voting against the bill were Republicans. The Senate passed the bill 98-0 yesterday after weeks of delays.

Homebuyers now have until April 30, 2010 to be under contract with a closing before July 1, 2010 to qualify.

Besides the date extension, the main changes to the tax credit for first-time buyers is that the income levels have been increased to $125,000 for single buyers and $225,000 for married couples with a $20,000 phase out. The previous limits were $75,000 and $150,000 respectively. In addition, the home purchased must be under $800,000 for the first-time homebuyer to qualify.

Expansion to Current Homeowners

The bill also expands the tax credit to current homeowners who purchase a new primary residence. The main qualification for them is that they must have used the home being sold as their primary residence consecutively for at least 5 of the previous 8 years. Current homeowners would be eligible for up to $6500 or $3250 for those married filing separately.

Contact me if you have any questions on this. For a good cheat-sheet explaining the differences of the new changes, click here.

Senate Agrees to Extend First-Time Buyer Tax Credit Until April, Reduced Credit offered to repeat buyers

The Senate tenatively agreed today to exend the $8,000 first-time homebuyer tax credit, which was set to expire at the end of November.
Details are still emerging, but the tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes.


In addition, they are adding a $6,500 credit for some current homeowners who buy a new residence by then.

To qualify, current homeowners must have lived in their primary residence for five continuous years.

Senators have not agreed on how the tentative deal would come up for a vote, but sources from both parties said they are considering adding the housing credit to a bill that would extend unemployment benefits. The Senate could vote on the overall bill as early as Thursday, but lawmakers were still haggling over several unrelated amendments Wednesday evening.

House Speaker Nancy Pelosi has indicated she also is interested in extending the homeowner credit, but House leaders have yet to endorse any one bill.

Free First-Time Homebuyer Seminar September 19

I am proud to announce that I am taking part in a Free First-Time Homebuyer Seminar September 19. Taking place at the Eisenhower Public Libary, 4613 N. Oketo in Harwood Heights, from 1-3 p.m., I will be joined by another award-winning Realtor, a mortgage consultant, real-estate attorney, tax professional and home inspector. For full details, go to Newbiebuyer.com

We will be discussing issues that first-time homebuyers need to know about, including the government's $8,000 tax credit (which expires December 1), mortgage options, things to consider before looking for a home, tax implications of home ownership, does it make sense to rent or buy for me? And much more! The event is free but you must rsvp. To do so, call 847.878.3724 or email your name, address and phone to chiarito@kw.com

In addition, the first 15 who RSVP will get a free hardcopy book "Your First Home: The Proven Path To Home Ownership." All attendees will get a CD-ROM containing the presentations.

Space is limited so RSVP today! Hope to see you September 19! Bring your questions!

Senators Push To Expand & Increase Homebuyer Tax Credit

June 10 - Lawmakers are pushing to revive legislation in the Senate that would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers.

Senator Johnny Isakson, a Georgia Republican, introduced a bill today that would increase the tax credit to $15,000 and remove income and other restrictions on who can qualify, according to his spokeswoman, Sheridan Watson. The Treasury Department declined to comment on the proposal.

The legislation, co-sponsored by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, would extend the homebuyer credit to multifamily properties used as the borrower’s primary residence. It would also eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit.

“The housing market continues to be a drag on the economy, John Castellani, president of the Washington-based Business Roundtable, said in a telephone interview today. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”

The Business Roundtable represents more than 100 chief executive officers including General Electric Co.’s Jeffrey Immelt and Exxon Mobil Corp.’s Rex Tillerson. The group and the National Association of Realtors are pushing to expand the tax credit and to lower mortgage rates to revive the housing market.

For All Borrowers

“One of the biggest problems facing the American people today is an illiquid housing market, a decline in their equity, a decline in their net worth and a depression in the housing market that we are obligated to correct if we possibly can,” Isakson said in a statement. Isakson said his legislation would spur demand in the housing market by giving homeowners the incentive to trade up to a more expensive home.

The bill would extend the tax credit, which now applies to homes purchased from Jan. 1 to Dec. 1, 2009, to one year after the new measure is signed into law, according to Watson. Isakson’s bill would make the credit available to all borrowers, not only borrowers who haven’t owned a home in the previous three years as is the case under current law. It would also let borrowers divide the credit over two years. The legislation wouldn’t be applied retroactively to purchases completed before the date of enactment, Watson said.

The bill is co-sponsored by Republican Senators Lamar Alexander of Tennessee, Saxby Chambliss of Georgia, David Vitter of Louisiana, James Risch of Idaho, Lisa Murkowski of Alaska, John Ensign of Nevada and Jim Bunning of Kentucky, according to a statement from Isakson.

Senator Joseph Lieberman, a Connecticut independent, has also signed on to the bill, according to the statement.

Using the First-Time Buyer Tax Credit Towards Your Down Payment --Clarification!

There has been a lot of confusion about whether or not first time homebuyers can use their tax credit to fund their downpayment. The answer is YES, but with a small catch. Only buyers who get FHA loans are eligible to do this, but they must have the required 3.5 percent down payment on their own. (The tax credit would be used on top of the 3.5 percent).

I hope that clarifies things for anyone who was confused. There also is a movement to expand the tax credit to all consumers and to increase it to $15,000 from the current $8,000. I will publish a post on this soon.