The IRS has tightened up the ship on the monitoring of tax filings where the taxpayer is claiming the Home Buyer Tax Credit. There has been far too much fraud and abuse. People have actually claimed the credit who were not entitled to it. Imagine that.
In some instances, it seems the IRS is making the rules as we go along. Probably because situations arise that no one at the Treasury had fully thought through.
Here are a few situations that mortgage professionals, real estate agents and even tax pros might not know about.
- Income limits are based on the borrower’s adjusted gross income. This means there are undoubtedly countless borrowers who have made a decision to either not buy a home or not RUSH to buy if they believe they can’t get the tax credit.
- When a borrower buys a 2-4-family home, and occupies one of the units as their primary residence, they are only allowed to claim 10% ($8000 max) of the “cost basis” of the unit they occupy. Their credit would not be based on the full sales price. So for example: If the purchase price of a 2-unit home was $130,000 and the units are identical, the “cost basis” for one unit would be $65,000. The maximum tax credit would be $6,500 – which is 10% of $65,000.
- Adjusted gross income CAN Exceed $125,000 (single) and $225,000 (married) by up to $20,000 and buyers can still claim a partial tax credit based upon a “MAGI formula” created by the IRS.
- Homes sold on “Land Contract or Contract for Deed” to a FTHB can QUALIFY for a tax credit if they meet 7 tests listed on the FAQs.
- For newly constructed homes, the “date of purchase” is considered the “date” the buyer occupies the property – not the closing date. Keep the receipts from the moving company.
Stay tuned. There may be more changes, re-interpretations and IRS opinions/rulings in store.
This post is not intended to provide tax advice. Please contact a professional tax advisor for guidance.
To stay completely up-to-date on all the pending mortgage changes, to see how they will affect you, and get news about interest rates and programs, just read my weekly updates - Click for free email alerts.