IRS: New Form Available to Claim Tax Credit

The Internal Revenue Service has released the new form that eligible home buyers need to claim the first-time home buyer credit this tax season. Processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time home buyer credit.

The new form and instructions follow major changes in November to the home buyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible home buyers can now start to file their 2009 tax returns. Taxpayers claiming the home buyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the home buyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the home buyer credit. Some early taxpayers claiming the home buyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible home buyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1 Settlement Statement.

• 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, the new law allows a longtime resident of the same main home to claim the home buyer credit if the resident purchases a new principal residence. To qualify, eligible taxpayers must show 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.

The IRS has stepped up compliance checks involving the home buyer credit, and encouraged home buyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five consecutive year period:
• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records, or
• Homeowner’s insurance records.

The IRS also reminds home buyers that the new documentation requirements mean taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those home buyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

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.