14 Weeks Left for the $6,500 Tax Credit
If you've been hesitating on utilizing the new $6,500 federal tax credit for repeat home purchases, there’s little time left for procrastination. You now have all the official IRS guidance you'll need to buy a house, qualify for the credit and pocket the $6,500.
The Internal Revenue Service finally published the guidelines for the repeat-purchase tax credit; with key details for taxpayers that had been absent since the legislation was passed on Nov. 6th.
On Jan. 15, the IRS finally posted its revised Form 5405 on its Web site, six weeks after cautioning taxpayers not to file claims for the $6,500 credit without using the revised form and new instructions.
The new repeat-purchase tax credit 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.
There was some confusion at first whether the new home purchase had to be used as a principal residence to utilize the $6500 tax credit; yes, the new home must be used as your principal residence to utilize the $6500 tax credit. 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 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 diplomatic personnel stationed overseas get an extra year to claim the credit.
The former vague language of guidelines that made up the legislation is now complete with IRS rules for homebuyers. 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.
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.
There are all $6500 incentives to move forward and sign your dotted name on a new home contract. But hurry because on 14 weeks are left to take advantage of this tax credit.
