The Internal Revenue Service this month is expected to begin processing the new form for those eligible to claim the first-time homebuyer tax credit, or for those long-term homeowners who can also qualify for a credit under certain conditions.
The IRS Form 5405, along with related instructions, was released last month for the 2009 tax year. The agency has also provided more helpful information to avoid confusion brought about by the Obama Administration’s extension and expansion of the popular credit in November.
The new form and instructions adhere to the recent changes under the Homeownership, and Business Assistance Act of 2009.
The tax credit for first-time homebuyers was extended by five months — until April 30, 2010. The credit can also be claimed if a binding contract before May 1, 2010 was signed to purchase the property before July 1, 2010.
The credit is worth up to $8,000 for eligible first-time home buyers.
But long-time residents can also claim a tax credit worth up to $6,500 if certain conditions are met. The primary requirement is that a homeowner must have lived in the same home, which served as the primary residence, for a five-consecutive-year period in the eight years ending with the purchase of the new residence.
The IRS also has a list of conditions that disqualifies homebuyers from getting tax credits. Among them are:
- The purchase price of the home is more than $800,000. This rule applies to homes purchased after November 6, 2009.
- The homebuyer’s modified adjusted gross income is: $95,000 or more ($170,000 or more if married filing jointly) and the home was purchased before November 7;
- Or the homebuyer’s modified adjusted gross income is: $145,000 or more ($245,000 or more if married filing jointly) and the home was purchased after November 6, 2009.
The IRS has said that it will begin processing 2009 tax returns claiming the homebuyer credit in mid-February after “updating and testing of systems to meet the law’s new requirements.” These updates allow the government safeguard or 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,” the agency said in a statement.
The agency urges homebuyers who may qualify for the tax credits to carefully read its instructions to determine what additional documentation is required. That information is covered on Page 2 of the instructions, under the heading: What To Attach to Your Return.
Primarily, the IRS requires: 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.”
