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IRS Issues Revised Form Reflecting Extended and Expanded First Time Homebuyer Credit

In a news release, IRS has announced the release of the revised Form 5405, First Time Homebuyer Credit and Repayment of the Credit, that taxpayers need to use to claim the first-time homebuyer credit (FTHTC) in 2009. Processing of these returns will begin in mid-February. IRS also announced new documentation requirements to deter fraud related to the FTHTC.

The revision extends the FTHTC to apply to a principal residence bought before May 1, 2010; it also applies to a principal residence bought before July 1, 2010 by a person who enters into a written binding contract before May 1, 2010, to close on the purchase of the principal residence before July 1, 2010. Certain service members on qualified official extended duty service outside of the U.S. get an extra year to buy a qualifying home and get the credit; they also can avoid the recapture rules under certain circumstances.
For purchases after Nov. 6, 2009, a taxpayer (i.e., a “long-time resident”) may claim the homebuyer credit if he (and, if married, his spouse) maintained the same principal residence for any 5-consecutive year period during the 8-years ending on the date that the taxpayer buys the subsequent principal residence. The maximum allowable homebuyer credit for such taxpayers, who are treated as first time homebuyers for purposes of the FTHTC, is $6,500 ($3,250 for a married individual filing separately), or 10% of the purchase price of the subsequent principal residence, whichever is less.
For purchases after Nov. 6, 2009, the FTHTC phases out over much higher modified AGI levels: for individuals, the phaseout range is between $125,000 and $145,000, and for those filing a joint return, it's between $225,000 and $245,000.
For purchases after Nov. 6, 2009, the FTHTC cannot be claimed for a home if its purchase price exceeds $800,000.
A number of anti-abuse provisions apply for purchases after Nov. 6, 2009. For example, dependents can't claim the FTHTC; a purchaser must be at least 18 years of age on the date of purchase; and the definition of a qualifying purchase for FTHTC purposes is amended to exclude property acquired from a person related to the person acquiring the property or the spouse of the person acquiring the property, if married.

Taxpayers cannot file electronically and must file paper returns because of the new documentation requirements. In addition to filling out Form 5405, taxpayers 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.

The Instructions provide that additional documentation will also be required if the purchased date is after April 30, 2010, and before July 1, 2010, and the taxpayer entered into a binding contract before May 1, 2010, to purchase the home before July 1, 2010. To avoid delays in processing their returns and receiving a refund, taxpayers have to attach a copy of the pages from the signed purchase contract showing all parties' names and signatures, the property address, the purchase price, and the date of the contract.

To qualify for the credit for long-time residents, taxpayers must show that they lived in their old homes for a 5-consecutive-year period during the 8-year period ending on the purchase date of the new home. IRS, which has stepped up compliance checks on homebuyer credit claims, encourages “long time residents” who are claiming the FTHTC to avoid refund delays by attaching the following documentation covering the 5-consecutive-year period:

Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
Property tax records, or
Homeowner's insurance records.

Disclaimer: These articles are intended to provide generic information only. To assess you situation and how you can utilize this credit, please contact one of our tax advisors.