Economic News

Homebuyer tax credit extension for contracted homebuyers only

by Broderick Perkins

(07/12/2010) The extension on filing for the homebuyer tax credit is available only to those who had already contracted to buy a home by the end of April.

On July 2, President Obama signed the "Homebuyer Assistance and Improvement Act of 2010" to extend the closing deadline for the already extended and expanded federal home buyer tax credit.

The new closing deadline is Sept. 30, 2010.

The old closing deadline was June 30, 2010.

The extension applies only to homebuyers who had sales contracts in place as of April 30, 2010, but had not yet closed.

Military personnel still have until April 30, 2011 to contract a home sale and June 30, 2011 to close the deal. Those dates for the military are unchanged by the new legislation.

The extension addressed concerns that many homebuyers might otherwise have been unable to meet the original June 30 closing deadline.

The National Association of Realtors estimated nearly 18,000 homeowners in California would have missed out on the tax credit without the extension.

The Internal Revenue Service (IRS) says special filing and documentation requirements apply to homebuyers claiming the tax credit, which can be a tax refund when a taxpayer's tax credits exceed taxes due.

Those claiming the credit must attach to their tax return a copy of the pages from the signed contract showing all parties' names and signatures if required by local law, the property address, the purchase price, and the date of the contract.

As well as completing "Form 5405, First-Time Homebuyer Credit and Repayment of the Credit", all eligible homebuyers must also include with their return one of the following documents:

• A copy of the settlement statement showing all parties' names and signatures if required by local law, property address, sales price, and date of purchase. The "HUD-1 Settlement Statement" fulfills this requirement.

• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.

• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate.

In addition to providing a tax benefit to first-time homebuyers and purchasers who haven't owned homes in recent years, the tax credit is also available to move-up buyers who qualify.

To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home.

Required documentation covering the five-consecutive-year period for move up buyers includes:

"IRS Form 1098, Mortgage Interest Statement" or substitute mortgage interest statements and property tax records or homeowners insurance records, according to the IRS.

There are several options for claiming the tax credit for a 2010 purchase.

• 1. If you have not filed your 2009 return, claim the tax credit on "Form 1040 U. S. Individual Income Tax Return."

Late filers can't file electronically, but you can still use IRS Free File to prepare your return. The returns must be printed out and sent to the IRS, along with all required documentation. The IRS also suggests that you choose direct deposit to speed any refund.

• 2. If you've already filed your 2009 return, you can claim the tax credit on an amended return using "Form 1040X Amended U.S. Individual Income Tax Return."

• 3. Whether or not you've filed a 2009 return, you can wait until next year to claim the tax credit on your 2010 Form 1040.

• More details on claiming the credit can be found in the Instructions to Form 5405, as well as on the "First-Time Homebuyer Credit" page on IRS.gov.

• Also talk to a tax professional about your specific situation.

• The Deadline Newsroom offers extensive coverage of the federal homebuyer tax credit, here.

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