February 2nd, 2010 9:52 AM by Lehel S.
IRS finally publishes rules for $6,500 repeat home buyer tax creditBy Kenneth R. Harney Reporting from Washington - If you've been holding back on the new $6,500 federal tax credit for repeat home purchases, you now have all the official IRS guidance you'll need to buy a house, qualify for the credit and pocket the $6,500.
That's because the Internal Revenue Service finally published the rules for the repeat purchase credit along with key details for taxpayers that had been missing since President Obama signed the legislation creating the program Nov. 6.
The IRS posted its revised Form 5405 on its website ( www.irs.gov) on Jan. 15, six weeks after the agency warned taxpayers not to file claims for the $6,500 credit without using the revised form and new instructions.
The repeat buyer credit -- inelegantly dubbed the "long-time resident of the same main home" credit by the IRS -- supplements the popular $8,000 credit for first-time buyers. Homeowners who have occupied the same property as a principal residence for any five consecutive years during the previous eight years may now be able to claim a tax credit on a purchase of another home they intend to use as a principal residence.
The credit is for as much as 10% of the price of the replacement home, capped at $6,500. The purchase contract must be dated from Nov. 7, 2009, to April 30, 2010, and the closing must occur no later than June 30. Members of the armed forces and federal diplomatic and intelligence personnel stationed overseas get an extra year to claim the credit.
The maximum purchase price on homes eligible for the credit is $800,000. Buyers are not required to sell their previous home, but they must be able to demonstrate that the replacement home they buy is or will be their principal residence.
The new IRS guidance answers key questions that had been uncertain from the legislative language alone. For example, they describe what documentation home buyers must submit along with their $6,500 credit claim. On 2009 and 2010 tax returns, buyers should attach:
* A copy of the signed HUD-1 settlement sheet, including contract sale price and date of closing. This is to document that the timing of the transaction meets the program's requirements.
* Evidence of long-term ownership and occupancy of the previous home to meet the five consecutive years' test. This can be property tax records, homeowners' insurance records or IRS Form 1098 interest statements for the five-year period.
* For buyers claiming a credit on a newly constructed home, where a HUD-1 settlement sheet is not available, the IRS will accept a copy of the certificate of occupancy showing the buyers' names, the property address and date.
* For buyers of mobile homes who are not able to get a settlement statement, the IRS will accept a copy of the executed retail sales contract showing the property's address, purchase price and date of purchase.
All this extra documentation was required by Congress after reports that audits had uncovered widespread abuses by those seeking the $8,000 credit for first-time buyers. Among these were fictitious home purchases in which taxpayers or tax preparers sought -- or obtained -- credits on properties that never were sold or bought. This time around, the IRS says, it is going to rigorously investigate all claims filed, starting with a review of the documentation submitted.
The new IRS guidance also spells out the revised income limits for home buyers claiming credits: Your modified adjusted gross income must be $125,000 or less if you are single, or $225,000 or less if you are married filing jointly. Above these limits, the allowable credit amount begins to phase down in increments, and it is eliminated once incomes reach $145,000 for singles and $245,000 for married joint filers.
There are pitfalls as well: An advisory posted by the IRS this month spelled out situations in which recipients of tax credits may have to repay them to the government. These include taxpayers who sell their homes within a 36-month period after purchase. Recipients must also repay the credit if they convert their principal residence to a rental or business property, or if their lender forecloses on the home.
With all the rules now available, here's the action message to potential tax-credit seekers: Speed up your search for the home you want to buy. There are only 14 weeks to sign a contract and five months to close.