homebuyer tax credit

[rick in cal]

I can't seem to find a way to download the new 2008 form 5405 and instructions even though an agent at the IRS told me there was a link at there website to do so. What I'm trying to determine is can two single taxpayers buy a house together and each qualify for the $7500 loan if they both meet all the other criteria. I can't find anything that says they can't and buying a 400k house shouldn't be any different than buying two 200k condo's. The IRS agent did say no but didn't seem to sure of her answer. Does anyone know where I can go to download the information I need.

[mcb39]

The credit is $3.750 for a married individual filing separately; or 10% of the purchase price of a principal residence. They discussed this subject at some length at tax school and were very careful to STRESS that this credit is really only a loan that will have to be repaid beginning in the second tax year after the year of purchase. If the taxpayer sells the home (or ceases to use it as his or her principal residence) before the credit is completely repaid, any remaining credit balance must be repaid on the tax return for the year the home is sold or ceases to be used as principal residence.

There is more to this "credit" than at first meets the eye.

My assumption, without research, is that the answer to your question is NO; or at the very least, the deduction would be reduced.

[kcjenkins]

I believe each of them can take it on 'their half' of the home.

[TAXBILLY]

http://www.irs.gov/newsroom/article/0,,id=186831,00.html

The $ 3750 max as described above is for MFS, not single. KC is correct.

http://www.irs.gov/pub/irs-dft/f5405--dft.pdf

taxbilly

[Kea]

Client bought a house with his wife. He did have a friend co-sign the loan and was wondering if that affects the credit / loan. I've looked at all the sites about this new law and don't see any reference to co-signers.

I'm guessing that since the $7500 is really just a loan, having a co-signer shouldn't really impact him. Is that right?

Thanks.

[BulldogTom]

Rick,

That is a good question and I don't know the answer. I THINK that the intention of the law is one residence, one credit. That would be an ASSUMPTION, and you know what they say about those.

Also, watch for the phase outs. If you client is making more than 75K (filing single) they start to phase out and it is gone at 95K.

Heads up.

Tom

Lodi, CA

[rick in cal]

Thanks for all the responses especially Taxabilly. I down loaded the form and although it wasn't the answer I wanted, the answer was there. Line one; enter the $7500 but if someone other than a spouse held an interest in the home enter your share of the amount only. Either way it's a nice perk and I have a number of clients who may be ready to buy a home or help their kids buy a home and this could make them act now. It has already added two new tax clients to my practice through the calls I've made to existing clients. I've also called a couple of real estate brokers who may refer some new clients to me because of this new credit.

[rick in cal]

Rick,

That is a good question and I don't know the answer. I THINK that the intention of the law is one residence, one credit. That would be an ASSUMPTION, and you know what they say about those.

Also, watch for the phase outs. If you client is making more than 75K (filing single) they start to phase out and it is gone at 95K.

Heads up.

Tom

Lodi, CA

Tom, I remember talking to you recently about you building your practice in a new area. This credit is a door opener, especially with home prices coming down so far.

Did you make it down to the Rose Bowl for the Fresno St game.

[Don in Upstate NY]

From the NATP "2008 The Essential 1040 Workshop" textbook - page 75

If two or more individuals who are not married purchase a principal residence, the total amount of the credit allowed to all such individuals is limited to $7,500. The credit is allocated among such individuals as prescribed by the IRS. Presumably, the IRS will provide this information in the instructions to Form 5405.

[mcb39]

From the NATP "2008 The Essential 1040 Workshop" textbook - page 75

This is certainly all really good information so early on. It was an exceptionally good question and a lot of others have been answered along the way. The biggest thing that they stressed to us was to be sure to educate the clients as to the payback rules of this "loan".

[kcjenkins]

Yes, it's almost a shame that they call it a 'credit', when it is in fact just a loan. I suspect that some folks are going to get burned on this one, especially the self-preparers. They may calculate their ability to buy taking the loan into account, without taking into account the payback. While $500 a year is not a lot extra, it's still enough to make a notable difference in a refund. And for those who already have to pay, it's going to upset them if they did not understand that is was just a loan, not a gift. I think I'm going to keep IR-2008-106 as a pdf on my desktop, to print out for every client who asks me about that 'credit'.

[TAXBILLY]

Don is correct and I was wrong. The $ 7500 is the maximum credit even if you have more than one owner.

taxbilly

[David1980]

This "credit" is probably not going to hurt too much in 2009 on 2008 tax returns (other than the abuse, probably will end up having lots of fraud like EIC does, but that shouldn't affect preparers too much.)

It will become a greater issue in future years, especially when you have a new client come in during the repayment period and they don't mention being in repayment. Or the client sells their home without consulting the preparer and then can't afford to pay back the balance of the credit. I imagine lots of IRS letters and refund adjustments will happen. It will sure be a joy when they call asking "How come my refund is $500 less than you said!"

[Randall]

This "credit" is probably not going to hurt too much in 2009 on 2008 tax returns (other than the abuse, probably will end up having lots of fraud like EIC does, but that shouldn't affect preparers too much.)

It will become a greater issue in future years, especially when you have a new client come in during the repayment period and they don't mention being in repayment. Or the client sells their home without consulting the preparer and then can't afford to pay back the balance of the credit. I imagine lots of IRS letters and refund adjustments will happen. It will sure be a joy when they call asking "How come my refund is $500 less than you said!"

This is a good heads-up for future new clients. I think I'll add to my list of info requested: date they purchased their home and, not just the previous year's tax return, but returns going back to all years since they have purchased a home (within the time credit available).

[kcjenkins]

Yes, I think I'll be asking all my clients if they purchased a home during the time frame, and then putting a special tag on all those clients files, as well as putting the data in their Permanent File, so that at least if I am doing their return when they sell I will be able to calculate that correctly. I agree that it will not be a big problem right now, but in future it will be huge.