Joe Foster's Blog

Homebuyer Tax Credit Brings Loads of Tax Filing Questions

Federal tax credits for home buyers have most certainly boosted the Tampa Bay real estate market. The incentives have prompted nervous buyers to get off the fence, and that has helped the area shed thousands of homes from Tampa's inventory of unsold properties.

But as these buyers prepare to cash in on their purchases by filing their 2010 tax returns, many are finding they may not be qualified after all or don't know how to file for the tax credit.

It can be incredibly overwhelming and confusing unless you are a licensed CPA.

Even if the case seems straightforward, it is always best to seek advice and guidance from an accountant.

There have been so many changes to the homebuyer tax credits this year. Here are some of the most helpful things the IRS wants you to know about these credits:

• The credits are available only to buyers purchasing primary residences. The IRS defines this as the residence where you spend most of your time.

• There are two credits available: One is for first-time buyers, or those who have not owned a home in the past three years. The maximum for this credit is $8,000 and, unlike last year's credit, this one does not have to be paid back. It applies to purchases made this year between Jan. 1 and April 30.

• In November, the government broadened the credit to include some buyers who already own homes. Those buyers are eligible for a credit of up to $6,500 for purchases made between Nov. 7 and April 30. In order to qualify, the buyer(s) must have owned a primary residence for at least five consecutive years, out of the past eight years. This credit also does not need to be paid back.

• There are income and price requirements as well. If the home was purchased after Nov. 6, it can cost no more than $800,000. If purchased after that date, individuals cannot earn more than $125,000, or married couples filing jointly cannot earn more than $225,000 per year.

• You don't have to wait until 2010 to claim your credit even if you buy this year. If you purchase a home before the April 30 deadline, then the credit can be claimed on this year's taxes.

• If you're claiming the credit, a paper filing is necessary. You cannot use the electronic filing option. Only taxpayers not claiming the credit can file electronically. You can still, of course, use electronic forms, but must print them out and mail them in, along with form 5405.

• Unlike last year, buyers claiming the credit must prove that they are eligible. This is due to some people that had filed for the credit last year, even though they had not purchased a home. (A few bad apples, right?) So, this year, you'll need to send the HUD settlement statement along with the tax form. If you're claiming the long-time owner credit, you will also need to include proof, such as copies of mortgage interest statements, property tax records or homeowner's insurance records along with all other required forms.

· Keep in mind that the credit is for your primary home. If you decide to rent or sell the home within three years, the credit must be repaid.

· Buyers claiming the credit will have to wait longer than usual to get the credit because of the need to file by paper. Expect to wait four to eight weeks, instead of the typical two weeks when filing electronically.

All of this new information only further supports our belief that unless you have the luxury of only filing a 1040EZ this year, it’s best to hand your taxes over to a professional.