Homebuyer Tax Credit Will Delay Your Refund

Tens of thousands of US taxpayers are expected to claim the First-Time Homebuyer Credit ("Credit") on their 2009 federal income tax returns. Many will get a refund, but claiming the Credit likely will cause a delay in getting the refund check.

Credit Basics

The Credit was part of the "Stimulus Act" signed by President Obama early in 2009. It was intended to spur the economy and encourage taxpayers to buy homes. It worked, too. According to the National Association of Realtors, first-time home buying hit record levels between November 2008 and November 2009.

Perhaps that's why the Credit was extended. It was slated to expire on November 30, 2010, but the Worker, Homeownership, and Business Assistance Act of 2009 extended the date. Some of the Credit's highlights and keys include:

  • First-time homebuyers can claim the Credit up to April 30, 2010. If you're in the military, you can claim it up to April 30, 2011
  • The credit is worth up to $8,000 for certain first-time buyers who didn't own a home for three years before buying their new home
  • It's worth $6,500 for certain homebuyers who bought a new home after living in their old home for at least 5 years
  • Non-military taxpayers have to repay the Credit if, within 36 months after buying it, they sell the new home or stop using it as their primary residence

The IRS has more details on the Credit.

Refund and Delay

Generally, the Credit results in refunds, or higher-than-usual refunds, for most taxpayers who claim it. That's because a tax credit lowers the amount of taxes you may owe. Your tax bill is lowered dollar for dollar in the amount of the credit.

Unfortunately, taxpayers who don't take the Credit will get their refunds weeks before taxpayers who claim the Credit. Why? There are several reasons:

  • You can't file your tax return electronically or "e-file" because you have to use a special Form for the credit, and you need certain documents to prove your eligibility for the Credit
  • Filing a paper return with the IRS generally delays refunds from four to eight weeks
  • To avoid fraud, the IRS has developed a new system for processing returns claiming the Credit, which requires more time than processing other returns
  • The IRS won't start processing returns claiming the Credit until mid-February 2010

Get Ready, File

So, your refund will be delayed. It's all the more reason to file your return as soon as possible. Make sure the IRS has it before it starts processing returns claiming the Credit. Here's what you'll need:

  • Form 5405, and don't forget the instructions. If you're using tax software (you can prepare your return with software, but don't e-file!) make sure it's updated and includes Form 5405
  • Supporting documents, such as a settlement statement showing all parties' names and signatures, property address, sales price and date of purchase. Check with the IRS for other documents that may be used to prove your eligibility
  • If you're claiming the $6,500 Credit, you'll need to be able to prove that you lived in your old home for five consecutive years during the eight years before you bought the new home. Your old mortgage interest statements or property tax records are good to have here

You took a big step and bought a big chunk of the "American Dream." Now make sure you get all the benefits of owning a new home, including the tax Credit.

Questions For Your Attorney

  • I bought a new home in 2008 but I didn't know about the First-Time Homebuyer Credit. Can I claim the Credit now, on my 2009 return?
  • Can I take the Credit if I bought a new home and intend to use part of it as my home office?
  • Who should take the Credit if my wife and I file separate returns?
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