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IRS Issues Guidance on New Homebuyer Tax Credit for 2009 Returns

Tax

By Matt McKinnon

On January 15, 2010, the Internal Revenue Service issued Information Release 2010-6, providing filing guidance for eligible homebuyers claiming the first-time homebuyer credit. The IRS will begin processing returns that claim this credit in mid-February.

With the issuance of IR 2010-6, the IRS released Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, so that eligible homebuyers may begin to file their 2009 tax returns. This new form and instructions incorporate the major changes to the homebuyer credit prescribed by the Worker, Homeownership, and Business Assistance Act of 2009. The Act added new documentation requirements to deter fraud and broadened the availability of the credit to more home purchasers, based on certain criteria.

New Documentation Requirements to Claim Credit

In order to receive the credit, eligible homeowners must include one of the following forms of documentation with their tax return, in addition to completing Form 5405:

  • Copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase.
  • If no settlement statement is available:
    • Mobile home purchasers - a copy of the executed retail sales contract showing the same information as needed on a settlement statement.
    • Newly constructed home - a copy of the certificate of occupancy showing the owner's name, property address, and date of the certificate.

Extension of Credit to Broader Range of Home Buyers

The Act now permits a long-time resident of the same home to claim the homebuyer credit if a new principal residence is purchased. Eligible taxpayers must show they lived in their old homes for a consecutive five-year period during the eight-year period ending on the purchase date of the new principal residence. Due to increased compliance checks involving the credit, the IRS is encouraging the attachment of certain documentation to avoid delays in processing returns and the issuance of refunds. One of the following forms of documentation for the entire five-consecutive-year period should be included with the return:

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

The new requirement to attach documentation prohibits taxpayers from filing electronically. Instead, paper returns must be filed. For early filers, the IRS expects the first refunds for returns with the homebuyer credit to be issued toward the end of March. Taxpayers are encouraged to use the direct deposit refund option to speed the refund, in light of having to file a paper return. 

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