Tax Credit For First Time Home Buyers

The Internal Revenue Service views the tax credit for first time home buyers as a refundable credit, which means that a taxpayer may claim it even if he owes no taxes. For the consumer, the $6,500 to 8,000 offers a welcome offset to an otherwise fund-consuming down payment. The savvy purchaser, who also wants to stay on the tax collectors’ good side, will be wise to dot each ‘i’ and cross each ‘t’ when petitioning for the tax credit for first time home buyers.

Supplies needed:

• Real estate closing documents (HUD-1) dated between August 9, 2008 and April 30, 2010
• IRS Form 5405
• IRS Form 1040X
• Optional: Proof of homeownership

Once all the paperwork is in order, it is time to go ahead and file for the tax credit for first time home buyers:

1. Amend your 2008 or 2009 return with a Form 1040X. File it along with Form 5405 to alert the IRS to your eligibility for the tax credit for first time home buyers. Although it is not absolutely necessary, it is a good idea to attach a copy of the HUD-1 settlement statement to the forms. Make sure to use a copy that has all parties’ signatures and dates.
2. Make use of the long-time resident exception. The tax credit for first time home buyers was also made available to consumers who already owned a home prior to the new purchase. In this case, the taxpayer must prove that he lived in the home for an uninterrupted five-year period prior to buying the new home. Attaching a Form 1098 for each of these five years is a good idea.
3. Prepare to repay the credit. A taxpayer, who applied for the credit in 2008, must repay it. If the consumer bought in 2009 or 2010, the tax credit for first time home buyers does not have to be repaid. There is an exception to this clause: if the homeowner no longer occupies the home as a main residence within the first three years of ownership, the credit turns into a loan.

It is easy to get confused by the changes of the credit rules in midstream. If the taxpayer anticipates owing a repayment, but is not entirely certain if he is exempt, he should contact a professional tax preparer for advice.