Tuesday, February 23 2010
The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the first-time and move-up homebuyer tax credit.
While the IRS is still requiring the filing of Form 5405, it is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common.
The IRS clarification says: "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”
For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.
Source: Washington Post (02/20/2010)
Tuesday, January 19 2010
Some first-time homebuyers and longtime homeowners may be able to claim a federal tax credit on a principal residence bought in 2009 or early 2010. Eligibility depends on a number of factors, including income, homeownership status, and the exact purchase date of the home.
New rules for first-time homebuyers
First-time buyers who purchase a home between Nov. 7, 2009, and April 30, 2010, may be entitled to a federal tax credit worth 10% of the sale price or $8,000, whichever is lesser. Income restrictions apply. The tax credit for joint filers begins to phase out at a modified adjusted gross income of $225,000 ($125,000 for individual taxpayers). The credit disappears entirely at $245,000 for joint filers ($145,000 for individuals).
Old rules for first-time homebuyers
First-timers who bought a home between Jan. 1, 2009, and Nov. 6, 2009, may also be eligible for a federal tax credit worth up to $8,000. A tax credit reduces your tax bill or increases your refund dollar for dollar. In general, whether under the old rules or the new rules, you’ll be required to repay the full value of the credit to the IRS if you don’t maintain the home as your principal residence for three years.
Tax credit for longtime homeowners
If you’re a longtime homeowner—meaning you’ve lived at your principal residence for five consecutive years out of the last eight—you may qualify for a homebuyer tax credit worth up to $6,500. You must purchase a new principal residence between Nov. 7, 2009, and April 30, 2010. Like the first-time homebuyer tax credit that applies to these dates, you can settle as late as June 30, 2010, as long as you have a binding contract by April 30.
Other restrictions and provisions
As long as they serve as principal residences, single-family homes, townhouses, co-ops, and condos are all eligible for a tax credit. Mobile homes may be eligible for the credit, even if the land itself is leased. Owning a vacation home or rental property doesn’t disqualify you as a first-time homebuyer, but you do have to make it clear such properties were never your principal residence.
Monday, January 18 2010
The IRS started accepting e-filed tax returns on Jan. 15, marking the official start of tax season. The IRS’ popular Free File program also started accepting returns on Friday. However, as usual, W-2 and 1099 forms are generally not due to taxpayers before Feb. 1, so many taxpayers will not be prepared to file before then.
With the start of tax season, the IRS also announced the release of a new form that eligible taxpayers must use to claim the first-time homebuyer credit. Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, must be filed with the taxpayer’s individual tax return and is used to report the purchase of a home that makes the taxpayer eligible for the credit. In addition to Form 5405, eligible taxpayers must also include with their 2009 returns a copy of the settlement statement, executed retail sales contract (for mobile home purchases) or the certificate of occupancy (for newly constructed residences). The IRS reminded taxpayers in a news release that those who are claiming the first-time homebuyer credit cannot e-file because they must attach a proof of purchase to their returns.
E-Filing and Free File
The IRS reports that last tax season 66% of all returns were e-filed (some 95 million returns). The IRS says that for this season it is working on faster acknowledgment of whether a return has been accepted or rejected.
The Free File program allows taxpayers to prepare and file returns electronically for free, through a partnership between the IRS and a group of tax software vendors. Last season, the IRS introduced a new aspect to the Free File program—online fillable forms, which almost any individual taxpayer can use. (Traditional Free File is available only to taxpayers below a $57,000 income limit.) The IRS is urging eligible taxpayers to use the Free File program.
According to the IRS, benefits of e-filing or using Free File include a fast refund, reduced error rate and quick acknowledgment. By using e-file and direct deposit, taxpayers can get a refund in as few as 10 days. The error rate for an e-filed return is 1%, compared with 20% for a paper return. Unlike paper filers, e-filing taxpayers receive an acknowledgment that the IRS has received and accepted or rejected their returns.