RISMEDIA, April 10, 2010—(MCT)—Living in a world of tax apps for iPhones and e-filing of tax returns, you do a double-take after finding out that the Internal Revenue Service wants paper from taxpayers filing for a home buyer credit.
“If I have a Form 5405 in my return, I have to paper-file, period,” said Don Schippa, president of Tax Research Services in Southfield, Mich. “They’re forcing you to file a paper return.”
Blame the IRS requirement on outrageous fraud committed last year in pursuit of the up-to-$8,000 credit for first-time home buyers, including one in which a 4-year-old supposedly bought a house. Last fall, the IRS said it was looking into more than 70,000 suspicious claims. It was obviously way too easy to cheat.
So, if you bought a house in 2009 hoping for one of two housing-related credits, get ready to file a Form 5405, submit a paper return and dig up more documents as proof that you qualify.
“Currently, the e-file system is not able to handle the wide variety of required and recommended supporting documents that would have to be scanned and submitted,” said Luis D. Garcia, IRS spokesperson in Detroit.
The IRS isn’t saying that you or your preparer should pull out a pencil and skip using tax software. Use software to avoid mistakes. Just print out the return and snail-mail it—along with all the required documents.
The painfully long list of rules associated with the credits for home buyers makes retiling the bathroom seem like a breeze. And there are traps. For example, if you own a home, you cannot buy another one, give it to a son or daughter and tell them to claim the first-time buyer’s credit.
However, a parent and child can be co-buyers. A parent could give a son or daughter money to buy a home, and then the offspring, if older than age 18 on the purchase date, could get the credit. But in another twist, a son or daughter who is still a dependent for tax purposes is not eligible to claim the credit.
Tax credits will still be available for some home purchases in 2010. Here are some of the rules you need to know:
-One tax credit designed to spur home sales offers up to $6,500 for some homeowners who buy a new house but have lived in another home for five consecutive years. The five years can be within an eight-year period ending on the date you bought the home on which you’re claiming the credit. So technically you did not have to be living in the old house when you bought the new one. This credit for longtime residents could apply to a home bought Nov. 7, 2009 through April 30, 2010. The buyer must have a contract in place by April 30, and the deal must close by June 30. You must move into the newly purchased home, Schippa said, but you do not have to sell your old home. “That’s kind of a funny twist to it,” he said. The $6,500 credit is not available for the purchase of a second or vacation home.
-A first-time buyer of a principal residence is allowed a refundable tax credit for 10% of the purchase price—up to a maximum of $8,000. This credit is for individuals and couples on purchases between April 8, 2008 and April 30, 2010. There are several versions of the credit, depending upon when the home was purchased. The latest version does not require that money from the credit be paid back.
Taxpayers with higher incomes can now qualify for the credit. Both home buyer credits are phased out for taxpayers with modified adjusted gross incomes between $125,000 and $145,000—or between $225,000 and $245,000 for joint filers. The IRS noted that the new law raises the income limits for homes purchased after Nov. 6, 2009.
You’re not going to get a tax break, though, if you bought a multimillion-dollar mansion. No credit is available if the purchase price of the home exceeds $800,000.
The refundable credits mean that individuals can get a check from the government whether or not they have an actual tax liability.
For homes bought this year, the credit can be claimed on the 2009 or 2010 return.
As for documentation, when you send in the tax return, include a copy of the closing contract (HUD-1 Settlement Statement), the most recent monthly mortgage statement, occupancy permit (if newly constructed) and at least two of the following showing name and address: current driver’s license or other state-issued ID, pay stub or bank statement from within the past two months, or current automobile registration.
Long-term residents who are claiming a credit must prove how many years they lived in the old home and attach a Form 1098, Mortgage Interest Statement (or substitute statement), property tax records or homeowner’s insurance records.
When new home buyers have a shot at getting thousands of dollars, it can pay to learn the rules—and supply the proper paperwork.
(c) 2010, Detroit Free Press.
Distributed by McClatchy-Tribune Information Services.
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