New Form 5405 Allows First-Time Homebuyers to File for Tax Credits After a Two Month Delay

After speaking with IRS media representative Jodie Reynolds, I learned that the Internal Revenue Service (IRS) recently released the new Form 5405. First-time homebuyers and long-time homeowners need this to claim the homebuyer tax credits. Although changes were made on November 6 which expanded the program, people couldn't file until the new form came out.

One of the newer changes may allow eligible long-time homeowners (those in a second or third home) to qualify for a credit, too. As noted above, after changes on November 6 filing was put on hold for awhile but...

Taxpayers can Now Start Filing for Their First-Time and Long-Time Home Buying Credits

Taxpayers can now start filing their taxes and the forms will start processing sometime in the middle of February. But here is an interesting twist on the "first-time" homebuyer credit, one that Reynolds said some homeowners might miss.

If you think that first-time homebuyer credits are only good for people buying their first home, think again. Even if this is not your first home, you might still qualify for the credit.

Long-time Homeowners May Get Tax Credits too

Because the First-Time Homebuyer Credit seems to include only those who are buying a home for the very first time (perhaps after being renters or graduating from college), Reynolds noted that there could be a significant number of people who don't realize that the law extends to long-time residents.

That's right. The home doesn't have to be a first purchase. However, to get the credit homeowners must have owned and used the home as a primary residence for at least five years with an eight year time time period. The eight year period starts from the closing date, going back eight years.

The eight year time frame is a minimum. Those who have lived in their home for longer than eight years may also be eligible.

However, whether buying a home for the first time or after having been a long-time resident, a new home must be purchased before getting the credit. This means that long-time homeowners must sell that home and close on a new one, as long as they sign a contract by April 30 and close on June 30.

For first-time homebuyers, it may seem obvious that they have to buy a home because it is a first home purchase and they've never owned a home before.But those who've bought a home before or lived and owned their current home for at least 8 years may not realize that they, too, may be eligible for this credit (depending on income requirements) - as long as they are buying a new residence.

The New Form 5405 is Now Available, Allowing Taxpayer to Start Filing After a Two Month Delay

Starting today, Januray 15, taxpayers can file 2009 taxes. I verified this with Reynolds. However, those claiming the homebuyer credit, whether it is the first-time homebuyer or long time resident credit, must file paper tax forms. Although processing is slated to start in mid- February, the IRS will be testing potentially fraudulent requests for credits. Even so, early taxpayers who meet requirements for the homebuyer credit could see refunds within a few weeks of processing.

Homebuyer Tax Credits - What Forms are Required

In order to help ensure that all requirements are met and fraudulent claims are minimized, certain documents are required. First, form 5405 must be filed.After that, one of these must be included:

A copy of the settlement statement, with all parties' names, as well as their signatures, property address, the sales price of the home and the date the home was actually sold or purchased. A form HUD-1 Settlement Statement would meet this requirements (if filled out correctly).

Mobile home purchasers might not be able to get a settlement statement. In that case, a copy of the executed retail sales contract could substitute. However, just as with a copy of the settlement statement, it has to showing all names and signatures, the home's legal property address, price and actual date of purchase.

Check the IRS.gov website for rules pertaining to those in newly constructed homes.

Long-time Homeowner Tax Credits: What Forms are Required

Read this part carefully because the IRS has increased qualifications for compliance. To qualify, certain records for a period of five consecutive years must be provided. These include Form 1098, the Mortgage Interest Statement (or acceptable substitutes), property tax records and homeowner's insurance records. It is important to remember that electronic filing is not an option and that paper returns have to be sent, along with the proper documents. IRS Free File can still be used but only if the forms are printed out and sent in.

In addition to the above information, keep in mind that those purchasing a home must be at least 18 years old and no credit is available if the home is worth more than $800,000.

Source: Jodie Reynold, IRS media representative - 317-685-7518