1. First Time Homebuyer Credit December 2009
Wage & Investment Division

2. Worker, Homeownership, and Business Assistance Act of 2009 (WHBAA)
First time homebuyers have qualified for refundable tax credits as part of the economic stimulus package
With that program set to expire at the end of November, Congress voted to extend and expand the program
President Obama signed WHBAA into law, November 6, 2009
Note: WHBBA – WORKER HOMEOWNERSHIP AND BUSINESS ASSISTANCE ACT OT 2009
WHBAA also extends unemployment benefits and expands tax breaks for money losing businesses.

3. First Time Homebuyer Credit for 2008 Purchases
Maximum credit $7,500
Repayment over 15 years - starting on tax year 2010 return
Purchases must have been completed between 4/9/2008 and 12/31/2008
In 2008, Congress provided first time homebuyers a refundable tax credit that was equivalent to an interest free 15 year loan, equal to 10% of the purchase price of the home up to $7,500. The credit was applicable to purchases completed on or after 4/9/2008 and on or before 12/31/2008. The credit is to be repaid over a 15 year period as additional tax.
Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year.  For example, repayment begins on a 2010 tax return. Normally, $500 will be due each year starting with the 2010 tax return until 2024 tax returns.
A taxpayer may need to adjust withholding or make quarterly estimated tax payments to ensure there is not an under-withholding issue.

4. First Time Homebuyer Credit for 2009 and 2010 Purchases
First Time Homebuyers
Maximum credit $8,000 ($4,000 for married filing separately),
Purchase must be completed between 01/01/2009 and 4/30/2010
Long Time Homeowners
Maximum credit $6,500 ($3,250 for married filing separately)
Purchase must be completed between 11/7/2009 and 4/30/2010
Credit allowed to homebuyers who sign a binding contract by
4/30/2010 and close by 6/30/2010
No Repayment, unless home ceases to be main home within 3 years of purchase date
Taxpayers can elect to claim credit on their prior year return purchases can be claimed on a 2008 return, either original or amended purchases can be claimed on a 2009 return, either original or amended.
Extend the current FTHBC
In general, the credit is extended to apply to a principal residence purchased by the taxpayer before May 1, 2010.
Expands the credit to Long Time Homeowners
Maximum credit $ 6,500, $ 3,250 MFS
The credit applies to the purchase of a principal residence before July 1, 2010 by any taxpayer who enters into a written binding contract before May 1, 2010, to close on that purchase before July 1, 2010

5. Purchase Date Extended for Military & Certain Civilians
Members of the military and certain other federal employees serving outside the U.S. on extended duty beginning on or after 1/1/2009, have an extra year to buy a principal residence
Home purchase deadlines extended by a year for members of the military and certain civilians, who have served outside the U.S. for a least 90 days from 1/1/09 – 4/30/10.

6. Eligibility Requirements
Must be primary residence
Must close on the purchase prior to claiming credit
Must be a first-time homebuyer to claim the $7,500 credit for 2008 purchases or $8,000 credit for 2009/2010 purchases
Must not have not owned a home in the three years prior to the purchase
Must be long-time resident of same principal residence to claim $6,500 credit for purchases after 11/6/2009
Must have owned and used the same principal residence for five consecutive years out of eight-year period ending on date of new purchase
Must file Form 5405 with relevant return
Only the purchase of a main home located in the United States qualifies and only for a limited time. Vacation homes and rental property are not eligible.
A taxpayer must be a first time homebuyer
Taxpayers who owned a main home at any time during the three years prior to the date of purchase are not eligible for the credit. This means that first-time homebuyers and those who have not owned a home in the three years prior to a purchase can qualify for the credit. In a joint return situation, neither spouse can own a main home during the three years prior to the date of purchase.
Long-Time Resident - An individual (or spouse) who has owned and used the same principal residence for any five-consecutive year period during the eight-year period ending on the date of purchase of a subsequent principal residence is treated as a first-time homebuyer
For example:
Geoff has owned his main home for the last 10 years, he “closes” on a new main home for $ 300,000 on 4/21/10 – he can claim a FTHBC, if otherwise qualified, of $ 6,500 [ $300,000 x 10% = $ 30,000 but limited to $ 6,500]
Anyone claiming the credit on a 2009 tax return or if claiming the credit for a home purchased after November 6, 2009 must use the December 2009 version of Form 5405.

7. Eligibility Limitations
For purchases before 11/7/2009 – Credit is reduced for taxpayers with modified adjusted gross income between $75,000 and $95,000 for individuals; or between $150,000 and $170,000 for joint filers
For purchases after 11/6/2009 – Income limits are increased to between $125,000 and $145,000 for individuals; or between $225,000 and $245,000 for joint filers
There was an income limitation – WHBAA raised the limits for purchases after 11/6/09 (Enactment date)

8. Eligibility Limitations (Continued)
The definition of a purchase excludes property acquired from a related person
refer to Publication 544, Related Persons
Non-resident aliens are ineligible for credit
Home cannot be acquired by gift or inheritance
A principal residence cannot be acquired/purchased from a related person (spouse, ancestor or lineal descendent, a corporation in which you own more than 50% or partnership in which you own more than 50% interest) is not eligible for the credit.
For purposes of this credit, only family members just stated are considered related persons. Family members such as brothers, sisters, uncles, etc. are not considered related persons for this credit.

9. New Requirements for Purchases after 11/6/2009
No credit allowed if purchase price exceeds $800,000
Dependent cannot take a credit
No credit allowed for a purchase from an in-law
Purchaser must be at least 18 years old on the date of purchase. For a married couple, only one spouse must meet the age requirement
Purchaser must attach a copy of a signed settlement statement to return
When submitting the form 5405 please provide the following:
Purchaser - must attach a copy of a settlement statement showing all parties' names and signatures, the property address, the purchase price, and the date of purchase.
If taxpayer is unable to obtain a settlement statement because purchase was a mobile home, taxpayer may attach a copy of anr executed retail sales contract showing all parties' names and signatures, the property address, the purchase price, and the date of purchase.
If claiming the credit for a newly constructed home and taxpayer does not have an executed settlement statement, taxpayer may attach a copy of the certificate of occupancy showing the name of the taxpayer, the property address, and the date of the certificate.
Binding Contract: If taxpayer purchased a home after April 30, they need to provide a copy of the pages from a signed contract to make a purchase showing all parties’ names and signatures, the property address, the purchase price, and the date of purchase.
5 of 8: If a taxpayer is applying under the special rule for long-time residents of the same principal residence, they need to provide copies of one of the following: prior year mortgage interest statements, property tax records, Form 1098, or homeowner insurance records. These records should be for a 5 consecutive year period for the same principal residence during the last 8 years prior to the purchase for which you are claiming the credit.

10. Repayments of Credit
For 2008 purchases, normally repaid in 15 equal annual installments beginning in 2010
For 2009/2010 purchases no repayment required unless a repayment trigger within 3 years
The 2008 first-time homebuyer credit is similar to a 15-year interest-free loan.  Normally, it is repaid in 15 equal annual installments beginning with the second tax year after the year the credit is claimed. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year.  For example, if you properly claim a $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return. Normally, $500 will be due each year from 2010 to 2024.
Taxpayers may need to adjust their withholding or make quarterly estimated tax payments to ensure you are not under-withheld.
However, some exceptions apply to the repayment rule. They include:
If a taxpayer dies, any remaining annual installments are not due. If the taxpayer filed a joint return and then dies, the surviving spouse would be required to repay his or her half of the remaining repayment amount.
If a taxpayer stops using the home as their main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property.
Please note – 2008 credit payments can be accelerated. For example; if a taxpayer disposes of the property or it ceases to be the main home, before the 15 year recapture – remaining repayment credit amount can be added to the income tax liability of the taxpayer for the year of sale or cessation of use.

11. Repayment Triggers Home ceases to be a main home
Convert home to rental or business use
Home disposed of by foreclosure, repossession or abandonment
Sell home
Additional Repayment Triggers include:
A Home disposed of by foreclosure, repossession or abandonment. There are special rules for involuntary conversions.   Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
If the home is sold; all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
If the home is transferred to a spouse, or, as part of a divorce settlement, to the former spouse, that person is responsible for making all subsequent installment payments.

12. No Repayment Required for Military & Certain Civilians
No repayment is required for members of the military or certain other federal employees if the residence is sold or ceases to be the taxpayer’s principal residence after December 31, 2008, in connection with Government orders received by the individual (or the individual’s spouse) for extended duty.
Waives recapture requirement for individuals on qualified official extended duty – generally members of the uniformed services, foreign service, & intelligence community on official orders away from home > 50 miles & > 90 days.

13. Requirement to File Form 5405
Claim the First Time Homebuyer Credit
Dispose of main home
Repayment of credit
Anyone claiming the FTHBC is required to file F5405 -
A change in the main home disposition and the repayment requirement also mandates filing Form 5405
(Details relating to the disposition of a home and the repayment of the credit will be explained later in the presentation)

14. Common FTHBC Filing Errors based on prior law trends and analysis
Credit claimed prior to closing or taking occupancy of home
Incomplete or incorrect Form 5405
More than 10% of the purchase price claimed
Taxpayer has owned a home in the last three years
Credit claimed prior to closing or taking occupancy of home - The taxpayer must buy the home after April 8, 2008, and before December 1, For a newly constructed home, the purchase date is the first date the home is occupied. – Taxpayers cannot claim the credit prior to closing on the purchase.
Incomplete or incorrect Form 5405
Taxpayer has owned a home in the last three years. The taxpayer must be a First Time Home Buyer. The definition of a First Time Home Buyer is any individual (and if married, such individual’s spouse) that has not owned a principal residence during the 3 year period ending on the date of the purchase for which the first time homebuyer credit is being claimed. Home must be located in the United States.

15. More FTHBC Filing Errors based on prior law trends and analysis
Married filing separate taxpayers each incorrectly claim $7,500 or $8,000 credit on his or her separate returns
Married taxpayers claim FTHBC when one spouse was a prior homeowner
FTHBC claimed by two or more taxpayers for same purchase and the total amount claimed exceeds the maximum allowable credit
Notice contains examples of allocation calculations.

16. Required Documentation for Audits
Most recent monthly mortgage statement
Occupancy permit, if newly-constructed
May be asked to submit a copy of the binding contract if required
At least two of the following showing name and address:
Current driver’s license or other state-issued identification
Recent pay statement (within the last two months)
Recent bank statement (within the last two months)
Current automobile registration
In an Audit , we will ask your client’s for documentation. We need to verify information related to the First-Time Homebuyer Credit claimed. We need to verify the details of the purchase and that the property is the taxpayer’s primary residence.
NOTE this is based on prior law, WHBAA will require taxpayers to attach a properly executed settlement statement. So if the TP does not follow the instructions to include documentation we will ask for the documentation
Please NOTE that if the purchase was financed through a private mortgage and monthly statements are not available, please provide a copy of a cancelled check (front and back) from a payment made within the last three months. If the purchase was a cash sale, please provide proof that the taxpayer paid for the property – a copy of a cancelled check(s) (front and back) or other payment instrument
AND
If the home purchased was newly-constructed, a copy of the occupancy permit
To allow us to verify the property is the taxpayer’s residence, we will ask the taxpayer to provide at least two of the following:
A copy of the taxpayers current driver’s license or other state-issued identification showing home address
A copy of a recent pay statement (within the last two months) showing taxpayers name and home address
A copy of a recent bank statement (within the last two months) showing taxpayers name and home address
A copy of a current automobile registration showing taxpayers name and home address
ALL of This information can also be referenced from Form 886-H-FTHBC
This form is included with a notice from the IRS to the taxpayer if they become subject to an audit.
Please keep in mind that if you as a preparer have concerns with respect to factual representations furnished by a client, you must also make reasonable inquiries if the information furnished by the taxpayer appears to be incorrect or incomplete.

17. Failure to Comply Penalties
Civil Penalties can be imposed for negligence, substantial understatement of tax, filing an erroneous refund claim, and fraud
Criminal penalties may be imposed for tax evasion, or making a false statement
Failure to Comply in the Rules can Result in Penalties.
Penalties can be imposed for negligence, substantial understatement of tax, filing an erroneous refund claim, and fraud.
Criminal penalties may be imposed for tax evasion, or making a false statement.
This is from p 83 of F1040 instructions, more information can be found in Pub 17 as well.

18. Resources IRS.gov Search “ARRA information center”
Search “first time homebuyer credit”
Publication 523, Selling Your Home
Form 5405, First-Time Homebuyer Credit
Definition of a home can be found in regulation (b) (page 5).
Shortcut to Q&A’s
Additional sources of information and specifically for the FTHBC can always be found on current IRS forms, instructions and publications, as well as the “Tax Professionals” page on IRS.gov.