Delayed closings! Sellers getting mad. Buyers’ truck (with all of their friends) sitting in the parking lot! It’s a mess when you have to postpone the closing for another 3 days because of new GFE disclosures.
Prepare for the worst–hope for the best!
I suggest that you email your real estate agents (Hot Tip of the Week) to add a clause to all purchase agreements that says: “Automatic Closing Date Extension Granted by buyers and sellers due to RESPA and/or Disclosure delays”. (Or have them talk with their Broker on how best to word it for their rules.)
It’s better to have the “conversation” about the potential problem upfront–than at the closing table.
Like most government legislation, the Nov 6, 2009 homebuyer tax credit extension created more questions than answers. However, according to Doug Geissler, CPA, the IRS is literally writing the “refund rules” as they go along.
Unbeknown to homebuyers, real estate agents and the mortgage industry, the IRS is giving behind-the-scenes instructions—that are not available to the general public—to CPA’s and tax advisors on how to file for the home buyer tax credit after Nov 6, 2009. It will be completely different than what you might have advised your clients previously—and your clients are NOT going to like these changes!
The first shocker? Your clients cannot file a 1040 EZ to claim the tax credit! Nor can they file tax returns electronically if claiming the tax credit!
Read exactly what and how the MAGI is figured; how the forms need to be filed; what docs need to accompany the tax return and the estimated time the IRS is projecting for the tax credit refund!
In addition, links to the most recent IRS Updates and FAQ’s provided.
Why no electronic filing or 1040 EZ forms?
It’s the first step in stopping fraudulent tax credit refunds. Believe it or not, the IRS never had a way to determine if a person owned a home—no auditing software in place–to determine if they previously claimed a “mortgage interest” deduction within a 3-year time period. The IRS is building “auditing software” now to “catch” previous homeowners who are trying to claim a FTHB tax credit.
Secondly, the IRS now requires that the HUD 1 or closing statement be attached to the 5405 form (and that cannot be attached electronically).
Third, speaking about the 5405 form…unless the home was purchased on or before November 6, 2009, currently there is NO FORM on the IRS website to file the amended return. Here’s the wording that you will find when you to the IRS website and try to download the form:
Changes have been made to the first-time homebuyer credit by Public Law
111-92, the Worker, Homeownership, and Business Assistance Act of 2009,
which was enacted on November 6, 2009. As a result, the 2008 Form 5405
can be used only for homes purchased before November 7, 2009, for which
an election is made to claim the credit for 2008. We will soon issue a
December 2009 revision of Form 5405. The December 2009 revision will be
for use for all homes purchased after November 6, 2009 (whether the credit
is claimed for 2008 or for 2009) and for all claims on 2009 returns for
homes purchased any time in 2009.
And to give them time to audit the document, the IRS is telling tax advisors to expect an average of a 16-week turn around time…which means that it could either be the refund OR a request for additional documentation. Geissler says that one of his clients recently received an IRS notice, requesting a letter from a landlord, a copy of a driver’s license and the closing statement on an amended tax return where the client was claiming the FTHB tax credit. Yes, the new law allows them to ask for additional info on amended returns.
So, what means, that if your clients is expecting an income tax refund AND a homebuyer tax credit refund, BOTH refunds could be held up for several months.
We all know what adjusted gross income is, right? But did you know that there are over 20 different “modified adjusted gross income” interpretations for different tax forms and credit tax claims?
In regard to the homebuyer tax credit, the simple explanation is that is Line 38 on the 1040 form (remember, no 1040EZ to claim this tax credit). However, if IRS Form 2555 (Foreign Earned Income) or IRS Form 4563 (Exclusion of Income fro Bona Fide Resident of American Samoa) is attached, this income has to be ADDED to line 38 to determine if the clients meet the maximum income limits of $125,000 or $225,000. While this might not apply to very many clients, it’s something you can counsel your client about if they claim foreign income to qualify for a loan.
Here are the links to the most recent updates regarding the Nov 6, 2009 homebuyer tax credit extension.
10 Important Facts About the Extended First-Time Buyer Tax Credit - 11-30-09
http://www.irs.gov/newsroom/article/0,,id=215827,00.html?portlet=7
First-Time Homebuyer Tax Credit - 11-24-09
http://www.irs.gov/newsroom/article/0,,id=204671,00.html
Tags: 1040, 5405, cpa, credit, extension, ez, Form, homebuyer, known, little, tax
