Bad News for New Homebuyers Filing for the Credit

I just saw the bad news on CNN for new homebuyers like me who want to file for the First Time Homebuyer tax credit. I’m used to filing my taxes online and getting my refund in ten days. This year, I will be stuck waiting for my sizable tax refund for months because I have to file on paper. We tried to avoid this by stopping withholding, but for various reasons, we still wound up overpaying by a few thousand. I want my money!

Prepare Online, but File Your 2009 Tax Return on Paper
You can still prepare your return online or with tax software. I’ll be reviewing two of the options in mid-February. However, due to fraud, the IRS is now requiring first-time homebuyers to file on paper and submit documentation in order to get the credit. I expect it will be the same for those who qualify under the extended credit or longterm owner credit, but those forms aren’t out yet.

Here’s the tricky part: the IRS doesn’t have this information on their website. The current form tells you to file it online as part of the Paperwork Reduction Act. According to CNN, they have been returning amended returns with requests for more information. I confirmed that the return must be filed on paper at the IRS website, but I have conflicting reports about the items you have to send along with it. You can still receive direct deposit of your refund if you file an original return on paper, so that should cut a couple weeks off the waiting time.

The IRS has posted the updated form. It only requires a copy of your HUD-1 form signed by all parties. If you, like me, didn’t receive signed copies of your documents, call your escrow company to request it.

What to Include with Your Return
If you closed escrow before November 7, 2009, you file form 5405 with your 1040. According to some sources, you only need to attach a copy of your HUD-1 settlement statement. According to CNN, you must attach a signed copy of your HUD-1 settlement form, a signed copy of a mortgage statement, and either a bank statement, photocopy of your driver’s license, or a paystub showing the new address. Hopefully you saved all your mortgage docs and received a paper mortgage statement! We only received one statement because we paid online. I hope we still have it. We’ve now refinanced, so we can’t even get copies of statements for the old mortgage.  If you haven’t yet closed, there are other documents to submit. See the form’s instructions for details.

I don’t mind submitting documentation – it was weird the IRS didn’t ask for proof in the first place. (They expected all taxpayers to be honest? Please.) I do mind that they don’t list the requirements on their website or have the new form out yet.

Progress on Amended 2008 Returns
If you filed an amended 2008 return to get the credit and haven’t received your money, you may receive a request for proof from the IRS. It’s also taking them months to process the amended returns, so that could be the reason you haven’t gotten your money. Unfortunately, you can’t cancel the amended return and claim the credit on your 2009 return. Once you’ve filed, you’ve filed.

Claiming the Credit for late 2009 and 2010 Purchases
If you bought a house in November or December of 2009, or will close escrow by April 30, 2010, you have to wait to claim the credit. you can now file for the credit on your 2009 return. The IRS is still working on the new form and regulations, so I wouldn’t expect to get your money quickly.

Before you file your return, double-check that you’ve done everything right. Hopefully the IRS will have the new rules out soon.

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