J. William Seabrooke CPA P.C.

Beginning in 2008 Congress provided a tax credit for those taxpayers who purchased a new or existing home for the first time.  This law went through several iterations from 2008-2010 and you may be affected by the provisions of the tax law IF you received the credit in any of these years. You have also probably already received a CPO3A Notice from the Internal Revenue Service. 

You will need to File Form 5405 (“First Time Homebuyer Credit and Repayment of the Credit”) IF you received the credit from your 2008 Federal tax return or if you received the tax credit in 2009-2010 and the home ceased to be your “main home” within three years of the original purchase date:

• 2008 – you received a tax credit associated with the purchase on a new home and you had never previously owned a home.  The maximum credit was $7,500.00.  However, this credit is required to be re-paid to the U.S. Treasury, beginning with your 2010 Federal tax return, at a rate of $500.00 year for 15 years;
• 2009-2010 – for the first ten months of the year the credit increased to a maximum of $8,000.00 but it was only available to first time homebuyers.  Then in November of 2009 Congress extended the tax credit to existing homebuyers and the expiration date.  For existing homebuyers the tax credit credit was equal to 10% of the purchase price of the home, but it was limited to a maximum amount of $6,500.00. There were also maximum adjusted gross income restructions.  The sales contract was required to be signed before May 1, 2010 and the sale was required to be completed by June 30, 2010.   In 2010 the expiration (qualification) date was extended to September 30, 2010. 

1. If you have received a CPO3A Notice (the notice number will appear in the upper right hand corner of the form) from the IRS and are not sure what action is required, follow this link:  http://www.irs.gov/individuals/article/0,,id=227895,00.html
2.  Are any of the following circumstances applicable to your situation?

•  You have sold the home which you purchased in 2009 or 2010 for which you received the tax credit,    OR
•  You are no longer using the home as your “main home”

If so, use this link:  http://www.irs.gov/pub/irs-pdf/i5405.pdf  If needed, Federal Form 5405 can be obtained from this website:  http://www.irs.gov/pub/irs-pdf/f5405.pdf 

 Addtional information on this subject follows:

Eight Essential Facts about Claiming the First-Time Homebuyer Credit 

If you purchased a home in 2010, you may be eligible to claim the First-Time Homebuyer Credit, whether you are a first-time homebuyer or a long-time resident purchasing a new home. The purchaser must have been at least 18 years old on the date of purchase; for a married couple, only one spouse must meet this age requirement. A dependent is not eligible to claim the credit.

Here are eight things the IRS wants you to know about claiming the credit:

1. You must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010.
2. To be considered a first-time homebuyer, you and your spouse – if you are married – must not have jointly or separately owned another principal residence during the three years prior to the date of purchase.
3. To be considered a long-time resident homebuyer you and your spouse – if you are married – must have lived in the same principal residence for any consecutive five-year period during the eight-year period that ended on the date the new home is purchased.
4. The maximum credit for a first-time homebuyer is $8,000, half that amount for married individuals filing separately. The maximum credit for a long-time resident homebuyer is $6,500. Married individuals filing separately are limited to $3,250.
5. You must file a paper return and attach Form 5405, First-Time Homebuyer Credit and Repayment of the Credit with additional documents to verify the purchase. Therefore, if you claim the credit you will not be able to file electronically.
6. New homebuyers must attach a copy of a properly executed settlement statement used to complete such purchase. Buyers of a newly constructed home, where a settlement statement is not available, must attach a copy of the dated certificate of occupancy. Mobile home purchasers who are unable to get a settlement statement must attach a copy of the retail sales contract.
7. If you are a long-time resident claiming the credit, the IRS recommends that you also attach any documentation covering the five-consecutive-year period, including Form 1098, Mortgage Interest Statement or substitute mortgage interest statements, property tax records or homeowner’s insurance records.
8. Members of the military and certain other federal employees serving outside the U.S. have an extra year to buy a principal residence in the U.S. and qualify for the credit.

For more information about these rules including details about documentation and other eligibility requirements for the First-Time Homebuyer Tax Credit, visit http://www.irs.gov/recovery.

Links:

• First-Time Homebuyer Credit
• Form 5405, First-Time Homebuyer Credit and Repayment of the Credit
• Instructions for Form 5405