Clients who have taken advantage of the homebuyer tax credit may be calling with questions about how to claim the credit on their taxes. They must have met the required deadlines to be eligible to claim the credit:
- They must have bought — or entered into a binding contract to buy — a principal residence on or before April 30, 2010.
- If they entered into a binding contract by April 30, 2010, they must have closed (gone to settlement) on the home on or before Sept. 30, 2010 (legislation passed in July 2010 extended the June 30 deadline previously in effect).
The IRS has released IR-2010-006, providing a revised Form 5405 to reflect the changes to the tax credit made in the extension and expansion legislation enacted in November 2009.
The release reminds taxpayers that all tax returns claiming the tax credit must be filed manually (i.e., they cannot utilize the IRS E-file automatic system). The revised form includes a section for those repeat buyers who are eligible to claim the $6,500 tax credit. The HUD-1 or evidence of the transaction must be filed with all returns claiming the credits (both the $8,000 and $6,500 credits). Individuals who claim the repeat buyer credit must also provide evidence that they have owned and used the prior residence for five consecutive years. The instructions indicate that property tax or homeowners insurance records are sufficient for this purpose.
Read the entire IRS release with instructions and forms here. For more information about claiming the first-time homebuyer tax credit, go here.
Real estate professionals need to be careful in providing detailed tax advice to clients to avoid lawsuits, but you can ensure clients have the information they need to understand the benefit of the homebuyer tax credit.