Taking advantage of tax credits just got harder

January 22, 2010 3:39:36 PM PST
Thousands of dollars in tax credits may not be as easy to claim as once thought. The incentives for buying homes in 2009 were great; $8,000 for first time buyers and $6,500 for existing homeowners who move into another home. But getting the money will require some extra work.

The IRS has been pushing electronic filing for years, but this time around, some taxpayers are being told to mail it in the old fashioned way That's the price homebuyers will pay to get tax credits that are worth thousands per family.

The homebuyer tax credits are being hailed by realtors as a big reason homes sold as well as they did in 2009. The $8,000 new homebuyer tax credit was just one incentive. Another gave $6,500 to current homeowners who bought a new primary residence. Those who took advantage of the program may have been looking forward to tax time because the credits would appear on their refunds, but getting the refunds just got a bit more complicated.

"There has been a tremendous amount of fraud," said Houston CPA Bob Martin.

That's why the IRS is now requiring those looking for the tax credit to supply a host of additional information when they file their returns.

"You are going to have to attach your settlement statement. A lot of times these are referred to as a closing statement," said Martin. "If you are taking the credit because you lived in a previous home for five years, you need to attach proof."

In addition to the extra paperwork, homebuyers will have to fill an extra form. It's form 5405 and it is available online, but those getting the credits cannot file their returns electronically.

"People can still file using free file," said Lea Crusberg with the IRS. "However, you must print out your information and mail it to the IRS with documentation. There are new documentation requirements for the first time homebuyer home credit."

For homebuyers who hoped to get a quick refund check, mailing returns will cause delays. But that's not the only issue slowing down refunds. The IRS will not start processing mailed-in returns for another month.

"We are going to start processing any of these returns in mid-February. However for those who file it they had an accurate claim that has all the documentation on paper, they won't see their money until the end of March," said Crusberg.

And here's another complication to the system. The tax credits are available to those who buy homes until May 1, which is after the tax filing deadline. So if those buyers want the credit this year, they will have to file an amended return or file an extension.


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