April 15th will be here before we know it and many are preparing for filing their income tax returns. If you are planning on claiming the home buyer tax credit (up to $8,000 for a first time home buyer or $6,500 for a repeat/long-time resident home buyer) there are some things you need to know as far as what the IRS will require.
First of all, you will not be able to e-file if you're claiming the home buyer tax credit. This is because the IRS is requiring supporting documentation due to all the fraud that transpired previously with the first time home buyer tax credit. So along with Form 5405, you may also need to send the following when you submit your return to the IRS:
- a copy of your HUD-1 Settlement Statement with signatures of both parties (your autographs and the Seller's). In Washington State, this is something you receive from your escrow company.
If you're claiming the tax credit as a "long time resident" home buyer (meaning you've owned and occupied your previous residence for any 5 consecutive year period during the 8 year period ending on the purchase date of your new home), in addition the the Settlement Statement, you will also need to provide the IRS one of the following:
- Form 1098 or Mortgage Interest Statement
- Property Tax Records
- Home owner insurance records
The IRS is requiring this documentation to prove you owned and occupied your home for a minimum of five out of eight years. And per their instructions:
"These records should be for 5 consecutive years of the 8 year period ending on the purchase date of the new home."
Be sure to review the IRS Instructions for Form 5405 for more information and please consult with your tax professional to make sure you qualify. My specialty is helping Washington State residents with their residential mortgage needs…not income taxes!
If you are considering buying a home and taking advantage of the first time or repeat (long time resident) home buyer tax, you only have about three months left. You must have a binding contract (signed purchase and sales agreement) by April 30, 2010 which must close by June 30, 2010.