10 Facts from the IRS - Extended First-Time Homebuyer Credit

Ok - so my thoughts that enough was enough on the first time home buyers credit clearly did not sway Washington.  The credit has been extended, but due to all the fraud, the IRS wants clear limitations to be known - so here they are:

1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.

2. If you enter into a binding contract by April 30, 2010 you must close on the home on or before June 30, 2010.

3. For qualifying purchases in 2010, you will have the option of claiming the credit on either your 2009 or 2010 return.

4. A long-time resident of the same home can now qualify for a reduced credit. You can qualify for the credit if you’ve lived in the same principal residence for any five-consecutive year period during the eight-year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009. (This might be helpful for children looking to purchase an elderly parents home for a promissory note as part of asset protection planning).

5. The maximum credit for long-time residents is $6,500. However, married individuals filing separately are limited to $3,250.

6. People with higher incomes can now qualify for the credit. The new law raises the income limits for homes purchased after November 6, 2009. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers.

7. The IRS will issue a December 2009 revision of Form 5405 to claim this credit. The December 2009 form must be used for homes purchased after November 6, 2009 – whether the credit is claimed for 2008 or for 2009 – and for all home purchases that are claimed on 2009 returns.

8. No credit is available if the purchase price of the home exceeds $800,000.

9. The purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet this age requirement.

10. A dependent is not eligible to claim the credit.

First Time Home Buyer Credit - Enough is Enough

To extend the credit or kill the credit, that is the question.  And will killing the credit take the real estate market along with it?

Much has been written, blogged, and talked about the first time home buyers credit - a very popular program that gave purchasers of new homes from January 1, 2009 to November 30, 2009 an $8500 credit.  

Now, of course the program is popular - those who qualify get a check from the IRS for $8500 - what could be unpopular about that?   According to Yahoo News ("Congress Scrutinizes Problems in Home Buyers Credit"), about 1.5 million applications have been made, and $10 Billion in tax revenue  ($10,000,000,000.00 - wow, that's a big number) has been refunded to homebuyers.

But what about all the people who don't qualify and are also getting $8500 checks. According to Yahoo News today:

  • Treasury Inspector General for Tax Administration identified more than 19,000 people that filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. The program didn't start until 2009.  The cost - $139 million ($139,000,000.00 - always write out the zeros in those numbers the government throws around).
  • The Treasury Inspector General identified another $500 million ($500,000,000.00) in claims, by some 74,000 taxpayers, where there were indications of prior home ownership (mortgage interest deduction, real estate tax deductions, etc.).
  • The Treasury Inspector General also found 580 taxpayers under the age of 18 who claimed $4 million ($4,000,000.00) in first-time home buyer credit. One was 4 years old.

Look, I believe in home ownership and the American Dream.  But this program was created a year ago in an entirely different economy when total bank failure was not out of the question, and the real estate market was frozen by the credit crunch.  Irrespective of the outright fraud (which deserves jail time in my opinion - the IRS does have criminal powers to address people stealing from us, the taxpayers), enough is enough.  If you can't afford the house, save until you can.  People buying houses they couldn't afford is part of what got us into this mess in the first place.  There are enough great deals out there without tax dollars being added to the pot.  The Great Spend needs to end, and closing out the first time home buyer credit is a good start.

What do you think?