The homebuyer tax credit seems to be causing a lot of confusion among potential participants. What is the tax credit? Is it up to $8000 or is it 10 percent up to $800,000. After all, not a lot of homes in this market being bought for $80,000.
The first time homebuyer credit is limited to the lesser of $8,000 or 10 percent of the purchase price. This only applies to houses purchased for less than $800,000.
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You say homebuyers taxing advantage of this credit can’t file electronically. They need to file the paper form. What happens if the return is filed incorrectly? Are there tax liabilities associated with this? Why would the IRS not offer this as part of its e-file program?
With any return filed incorrectly, whether filed on paper or e-filed, there is a potential for additional tax liability. The IRS has had many fraudulent e-filed returns claiming the first time homebuyer credit. To assist in making sure the claim is appropriate they now require a copy of the purchase settlement sheet to be attached to the mailed return.
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What are the ramifications if a homeowner finds out they’re not eligible for the tax credit? Is it something they can determine before they purchase the house?
The home owner can base their eligibility on their 2008 prior year tax return to determine eligibility to amend and claim the credit for 2008. If they are not eligible for 2008, they would then need to seek out a CPA to project their 2009 income determination.
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Two aspects of the law seem surprising: the home can’t be bought from a close relative and purchasers can get the tax credit for purchasing income producing properties. What are the guidelines?Â
You cannot buy the home from a lineal descendant, and the only income producing property that is eligible is for owner occupied, and the purchase price must be allocated between personal residence and income producing portion.
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Are problems with confusion over the deduction tied to misunderstanding the tax code or misrepresentation of what’s allowed by overzealous real estate agents just trying to sell homes and earn commissions?Â
The credit on the surface seems clear. But as with any large financial transaction the tax tail cannot wag the dog. Home ownership is a huge financial obligation and should not be dictated by a onetime $8,000 tax credit. The devil is always in the detail and one should seek out professional financial and or tax advice prior to a home purchase.
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How much of an effect has this tax credit program had on real estate sales? Have there been estimates of how much real estate has been sold because of the tax credits?
It is hard to quantify the effect of the tax credit program on real estate sales as there are many variables that got into the equation. According to the S&P Case-Shiller Home Price Indices from December 29 2009, the effect of the tax credit on home prices seems to be waning.
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Tax information provided by strategic partner Michael V. Adams, CPA
