STEP UP TO REPEAT BUYER TAX CREDIT

By Kenneth R. Harney
The Nation’s Housing | Sunday, January 24, 2010

If you’ve been holding back on getting involved with the new $6,500 federal tax credit for repeat home buyers, there’s no more excuse for inaction. You now have all the official Internal Revenue Service guidance you’ll need to go out and buy a house, qualify for the credit, and pocket the $6,500. That’s because the IRS has finally published the rules for the repeat-purchase credit, along with key program details that had been missing since President Obama signed legislation creating the credit on Nov. 6. On Jan. 15, the IRS posted its revised Form 5405 on its Web site, www.irs.gov, six weeks after warning 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 - is an offshoot of the popular $8,000 credit for first-time purchasers. Taxpayers who’ve occupied the same property as a principal residence for any five consecutive years out of the previous eight can generally claim the credit if they buy another principal residence. The credit covers $6,500 or 10 percent of the new home’s price, whichever is lower.
To qualify, you must:

• buy a home costing no more than $800,000.

• sign a purchase-and-sales agreement between Nov. 7, 2009, and April 30, 2010, and close the sale by June 30, 2010. (People stationed overseas for the U.S. military, State Department or intelligence community get an extra year.
  
  

Buyers don’t have to sell their previous homes, but must demonstrate that the new place they buy is or will become their primary residence.

To claim the credit on your 2009 or 2010 tax return, attach:

• A copy of your new home’s signed HUD-1 settlement sheet, including contract sale price and date of closing. This will document when your purchase took place. If you’re buying a new-construction home with no HUD-1 available, the IRS will accept a copy of the certificate of occupancy showing the property’s address, the purchasers’ names and the issue date.

• Evidence of long-term ownership and occupancy of your previous home. The IRS will accept property-tax records, homeowners’ insurance receipts or Form 1098 mortgage-interest statements.

Congress is requiring all of this extra documentation because IRS audits uncovered widespread abuses surrounding the original $8,000 first-time home-buyers tax credit.

Problems included taxpayers or tax preparers who sought - and sometimes got - $8,000 credits for properties never even sold. This time around, the IRS says it’s 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’re single or $225,000 or less if you’re married filing jointly.

Above these limits, the credit begins to phase out - and is eliminated completely for singles who make $145,000 or more and couples who earn at least $245,000.

There are other pitfalls as well. An advisory the IRS posted earlier this month spells out situations where tax-credit recipients might actually have to repay money to the government.
These include taxpayers who:

• sell their new houses within 36 months of buying the places;
• convert a new principal residence into a rental or business property;
• end up in foreclosure on the new house.

The bottom line for consumers interested in the $6,500 credit: Speed up your house hunting.
There are less than three months to go till the deadline for signed purchase-and-sale agreements - and just five months to go to close on deals.