Tag Archive for '8000 tax credit'

According to the US General Accountability Office (GAO), the $8,000 first time home buyer tax credit has spawned a lot of tax fraud, and the IRS has identified about 100,000 possibly fraudulent returns. It appears that billions of dollars have gone to taxpayers who weren't eligible to take the credit--and the IRS wants its money back. A spokesperson for the agency stated that it will "vigorously pursue those who filed fraudulent claims." Tax fraud carries penalties ranging from expensive fines to actual jail time with icky criminals and bad food. You don't want to end up there.

Here is what the IRS has to say about what it might do to you if it thinks you are trying to pull the wool over its eyes:

Any Person who?? (makes a) Declaration under penalties of perjury - Willfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter; shall be guilty of a felony and, upon conviction thereof;

• Shall be imprisoned not more than 3 years

• Or fined not more than $250,000 for individuals ($500,000 for corporations)

• Or both, together with cost of prosecution

So if you have taken or expect to take the $8,000 credit, make sure that you are entitled to receive this money and file for it correctly to avoid an expensive misunderstanding. Here's what you need to know:

* You can't claim the credit until you have actually closed on your house. Duh. If it's still under construction, you can't claim the credit until after you move in. Treasury Inspector General J. Russell George reported that more than 19,000 people filed 2008 tax returns or amended their 2008 returns claiming the credit to the tune of about $139 million, but they hadn't actually bought the house yet. Are they going to claim lots of exemptions for children they haven't conceived yet as well?

* You have to be old enough to legally sign a contract to buy a house. Parents can't buy a house in their child's name just to get $8,000. Amazingly, there were 580 taxpayers under the age of 18 claiming $4 million in first-time home buyer credits. One was only 4 years old, and somehow I think his parents knew that he couldn't really buy a home--way to go, Mom and Dad! I guess Junior can visit you in jail....

* This is the biggie--you can't have previously owned a primary residence in the last three years, and the IRS definition of "first-time home buyer" is different from HUD's. For example, HUD allows "displaced homemakers" to be classified as first timers but the IRS does not--and the IRS has the last word in this case. How does the IRS discover that you have previous home ownership experience? You probably told it--bydeducting mortgage interest or property tax on previous returns. The revenooers stated that $500 million in claims filed by 74,000 taxpayers may be invalid--there were indications of previous home ownership that would disqualify the taxpayers.

So play by the rules--you probably can't get away with flouting them. By the end of September, the IRS put more than 110,000 refunds on ice until civil or criminal actions have run their course, identified 167 criminal rackets, and started 115 criminal investigations. The agency has changed its software to more easily catch people who have not yet purchased a new home, and it has installed filters to catch those whose previous tax returns indicate home ownership, picking up deductions for mortgage interest or real estate taxes.

Okay, you have been estranged from your spouse for several years. You'd like to buy your first house and of course you want the $8,000 first time home buyer tax credit. You file your taxes as a single person--in fact, you file as a Head of Household because you are for all practical purposes a single parent. How does the credit work for you?

Unfortunately, it may not work at all. If your almost-ex has owned a home in the last three years, you are out of luck. Because you are still legally married, if your spouse is ineligible for the credit then you are also. According to the IRS, "Section 36(c)(1) requires that the taxpayer and the taxpayer's spouse not have an ownership interest in a principal residence within the three years prior to the date of purchase. While individuals do not have to be married to get the credit, marriage (and legal separation) imputes ownership of a previous home upon the other spouse. The taxpayer may not take the credit even if filed on a separate return."

If your kicked-to-the-curb husband or wife IS eligible for the credit, you get to take half of your maximum, that is, up to $4,000--just as though you were married and filing separately.

Other Restrictions on the First Time Home Buyer Credit

Keep in mind that the three-year rule is just one of the criteria that determine your eligibility for the credit.

* You don't qualify if you buy your house from a close blood relative.

* You don't qualify if the property is not your primary residence. If you have to move before you have owned the home for at least three years, for example if your job or other circumstances force you to stop using the property as your main residence, the entire $8,000 must be returned to the IRS.

* You don't qualify if your modified adjusted gross income (MAGI) exceeds $95,000, and your credit gets phased out once your MAGI hits $75,000.

* You don't qualify if you are a non-resident alien.

So as long as you are separated and not divorced, the biggest credit that you can possibly take is $4,000, and that's only if the impending-ex hasn't owned a main home in the last three years. With up to $8,000 at stake, now might be the right time to finalize that divorce.

Many taxpayers - regardless of credit history - jumped last year to take advantage of a $7,500 tax credit for first time home buyers. The advantage of this credit was that it was refundable--even if you didn't owe $7,500 in taxes you got the whole credit. For example if you owed $2,500, your credit covered that debt and the government cut you a check for $5,000. The downside was that over a 15 year period, the credit had to be repaid.

Then, Congress passed the American Recovery and Reinvestment Act of 2009. This new bill increases the credit to $8,000 and that $8,000 doesn't have to be repaid. How does this new bill affect those who took the $7,500 credit?

Unfortunately, if you took the $7,500, you can't take the new $8,000 credit. And you still have to repay the $7,500 back over 15 years. But you don't have to start repayment for a couple of years, and the value of getting $7,500 at no interest for many years still comes to about $4,000. So while the $7,500 you got may not give you warm fuzzies, it's better than a sharp stick and still a good deal.

Now for those who have not bought a house yet, there may be all kinds of goodies available to you, depending on your income.

* Mortgage Credit Certificate Programs These create a tax advantage for first-time buyers. It's pretty much free money if you meet the IRS income guidelines and your home purchase doesn't exceed a predetermined amount. An MCC allows you to deduct your mortgage interest and adds a 20% tax credit towards your income tax liability. And the lender will deduct that credit from your house payment when calculating your debt to income ratios, qualifying you for a larger loan than you otherwise could.

* A refundable $8,000 credit for first-time homebuyers. And many folks who have owned property in the past still qualify for "first time homebuyer" status. Check here to see if you qualify. Here are the details:

· The tax credit does not have to be repaid.

· The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $8,000.

· The credit is available for homes purchased on or after January 1, 2009 and before December 1, 2009.

· Single taxpayers with incomes up to $75,000 and married couples with incomes up to $150,000 qualify for the full tax credit.

· If you have not filed your taxes yet for 2008 and you close on a home before you do so, you may be able to apply it on your 2008 tax return. Check with a tax pro for details.

* Rural Housing Programs You'd be amazed at what's considered rural by the USDA. Programs include zero down payment options for qualifying buyers in qualifying areas. And on February 1st, these rates dropped to 4.375%. Check out the details here.

So 2009 brings a lot of good reasons to buy a home. FHA and USDA lending guidelines are fairly liberal, and first timers can catch a lot of breaks from the IRS. When it comes to home buying, the US government loves newbies. Talk about beginner's luck.

You can start your search by contacting our database of new home loan lenders to request a mortgage prequalification letter from mortgage lenders; if you have a property in mind already, you can request up to four free competing mortgage quotes. If you already have a property, given current low market rates, consider requesting mortgage refinance quotes through our mortgage lender matching service. Good luck!