First Time Homebuyer Credit

[MargaretMort]

I asked the other day for help with the Form 5405, today I was implementing the suggestions when I started reading the general instructions. This person previously owned and lived in a trailer. She purchased a home, signed contract 1/22/2009. She was under the impression she was entitled to the $8000 credit.

I thought so too, until I started reading the instructions which I find to be contradictory and confusing.

For a first-time homebuyer, you bought after 12/31/08 and before 5/1/2010-correct. You did not own any other main home during the 3 yr period ending on the date of purchase. Wrong?

Long-time resident, previously owned a main home for any 5 etc. Yes she did. Purchased new main home after Nov 6, 2009. Nope.

As I now read this, she is not entitled to anything. The WHO CANNOT CLAIM THE CREDIT doesn't apply to her circumstances.

Please weigh in on this. I really need to hear others thoughts!

My sincere thanks. MM

[mcb39]

Margaret, it looks to me as though she would have qualified for the Replacement Home Purchase credit if she had purchased after Nov 6, 2009. I think that you are correct in that she does not qualify for anything.

[chuck]

no credit allowed. sorry for them.

[Terry D EA]

no credit allowed. sorry for them.

It always pays to review these things carefully. I agree no credit under the circumstances you presented.

Terry D.

[Margaret CPA in OH]

Yes, too bad for my son and wife, too. They closed on their house Oct. 30, one week before Nov. 6. It cost them $6500 in credit (he owned a home for 5 1/2 years previously) but the seller, an estate executor, wanted to close by end of October. They all agreed while the Washington negotiations were still in process.

I was kind of proud of my son,though, as he philosophically observed that they had not counted on the credit anyway when deciding to buy the house. So there are folks who really don't always have a tax motive behind every decision.

[jainen]

>>It cost them $6500 in credit<<

I don't agree with that conclusion. The potential credit did not and could not exist at the time of the actual purchase, and the actual purchase did not and could not exist at the time of the potential credit. In my opinion, major decisions like buying a house should not be based on tax effect, and looking back at what tax effects might have been if the laws had been different does not get you any useful conclusions.

[mcb39]

Still, motive or not aside, it is still too bad for those who miss it by a few days or a month. All of these odd cutoff dates are extremely difficult to keep track of; not to mention the aggravation.

[Margaret CPA in OH]

Jainen, I specifically mentioned that my son did not have a tax motive in buying his house and closing when he did. The purchase took place at the closing. If, by chance or design, the closing had been scheduled for Nov. 6 or after, they would have been able to avail themselves of the credit. It "cost them" because they knew the credit was in the process of being made into law and thought about waiting but decided, as mentioned, that they had not counted on it in their decision to purchase. They also chose not to request a delay in closing because there was no tax motive in their purchase decision.

[jainen]

>>these odd cutoff dates are extremely difficult to keep track of<<

Would you have advised the buyer to turn down this very highly motivated seller because maybe someday Congress would pass some tax credit? Would you say it cost him another $1500 in credit because he didn't install energy efficient windows?

It seems to me the buyer got a great deal, exactly what he wanted when he wanted it. Tax credits were never a part of it anyway, according to the original post, so what in the world could be "too bad" about it?

[taxguy057]

Since we're on this topic, which actually this help me with making sure one of my clients qualify for the credit...which they do based off of your previous analysis. My question to the forum now is: Do I have to mail the entire return in this year since filing the 5405? I believe i read that some where last month. and if thats the case, all i need from the TP is the HUD-1 correct? Any and all help on this will be greatly appreciated... :)

[Tax Prep by Deb]

Yes the return has to be mailed in. And yes the HUD-1 needs to be attached, however according to the instructions it states that the HUD-1 has to be signed by both parties, seller and buyer. In California I have never seen a signed HUD-1 by either party and when I sent my client to get a copy she was told that it couldn't be produced because of confidentiality clauses. We do have a purchase agreement with both parties signature so I also included a copy of that. I hope IRS will accept it otherwise they are asking for the impossible.

Deb!

[taxguy057]

Yeah good ole IRS always wants you to make the impossible-possible! lol! thx for the help!

[mcb39]

>>these odd cutoff dates are extremely difficult to keep track of<<

Would you have advised the buyer to turn down this very highly motivated seller because maybe someday Congress would pass some tax credit? Would you say it cost him another $1500 in credit because he didn't install energy efficient windows?

It seems to me the buyer got a great deal, exactly what he wanted when he wanted it. Tax credits were never a part of it anyway, according to the original post, so what in the world could be "too bad" about it?

Jainen, I have to agree to disagree on this one. We aren't saying anything of the kind. I have clients who have purchased houses and are surprised when they find out they are getting a credit (in addition to an extremely good buy). On the other hand, we all have clients who are trying to twist every situation to benefit themselves. It is our job to weed them out; and often they don't qualify for anything. However, I had to do battle with the IRS all summer for a client who received and deserved the credit last year. He didn't time his purchase to comply with the passage of a tax law. He timed it to comply with his marriage. He just happened to be eligible and the IRS was adament that he had to pay it back because he had paid property taxes in the prior year on vacant land. He ended up receiving a letter of apology from the IRS, but we didn't get it settled until Sept.

I still cannot help feeling sorry for the ones like Margaret's son who miss it by a few days or a month. That doesn't mean that I don't understand that there have to be cutoff dates. It would be just as rediculous for those of us who put kids through college without any education credits to be crying over that can of spilled milk. It is what it is, but that doesn't mean that it always seems fair.