The requirements to qualify for and receive the new homebuyer credit has been a “work-in-progress” provision of the Federal tax regulations for many months. Initially promulgated via the Housing and Economic Recovery Act of 2008 the law provided for a new refundable tax credit for individuals who were qualified first-time homebuyers of a principal residence in the United States. For 2008, the credit applied to the purchase of a principal residence which was purchased after April 8, 2008, and on or before December 31, 2008. It provided qualified taxpayers with a one-time tax credit in the year of purchase.  However, the law required that the credit be repaid over a 15-year period. It was in essence an interest free loan.
In 2009 the law was changed to provide for the tax credit with no re-payment requirement. However, it was still limited to first time homebuyers. It was due to expire on November 30, 2009. Then on November 6th Congress and the President extended the provisions of the law  in to 2010 to include a home purchased after November 6th and on contract on or before April 30, 2010. The actual closing must occur on or before June 30, 2010. The credit is claimed using Form 5405 which is filed along with the individual tax return. That form was recently revised by the Internal Revenue Service but the documentation requirements are significantly more stringent. However, several written documents must be included with the tax return and the Form 5405. Taxpayers also can not file their tax returns electronically, and must paper file. This requirement not only extends the time frame for the receipt of a tax refund, it also increases the risk that an administration processing error may occur or that tax returns may be questioned by the IRS. Instructions for the completion of the Form 5405 and the associated required supporting documentation can be found on the IRS website (http://www.irs.gov)   Here is the information that was provided by the IRS today:
New Homebuyer Credit – Claim It: English | Spanish
New Homebuyer Credit – Military: English
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WASHINGTON — The Internal Revenue Service today released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.
The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.
With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.
The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.
Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.
In addition to filling out a Form 5405, all eligible homebuyers 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.
In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:
- Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
- Property tax records or
- Homeowner’s insurance records.
The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.
Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.
The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where’s My Refund? on IRS.gov to track the status of their refund.
More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.
New update from the IRS Â – February 12, 2010:
Additional Information Regarding Signature Requirements for First-Time Homebuyer Credit Documentation |
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