Tax Law Blog | IRS Tax Attorneys

The dead line for The First Time Homebuyer Credit is November 30, 2009, which is just around the corner.  As we know, the Housing and Economic Act of 2008 allows a tax credit of $ 8,000 for qualified first time home buyers. This credit is available for the homes purchased from April 8, 2008 to December 1, 2009. Which means to take the advantage from this credit, taxpayer must close the purchase by November 30, 2009.  The adoption of this plan was a part of economic- stimulus effort to encourage homebuyers and boost the sales of housing market to stimulate the economy.

Some things that taxpayers should also know about this credit are that, According to IRS since the time this measure was adopted, more than a million claims have been received by the IRS.  Due to the increased number of credits applied so far, the IRS’s focus on these claims has also increased.  IRS is concerned that there is a potential for fraud and the misuse of this new refundable tax credit.  Now, the IRS is greatly focused on fraudulent claims and has also increased its investigation to prevent the misuse of this tax break.  The Internal Revenue Service is examining more than 100,000 suspicious claims filed for the first-time home-buyer tax benefit.Some lawmakers, tax experts and even the IRS believe that there is evidence that a significant number of the claims might prove to be unjustified, or even fraudulent.

An IRS spokesman said the agency “will vigorously pursue those who filed fraudulent claims” for this credit.

As this program is coming to an end, more and more people would want to take an advantage of this credit and might not make an effort to find out about the other eligibility requirements that would qualify the taxpayer to claim this credit and could cause a potential trouble.

Please seek the help of a tax expert and a good realtor who could help you benefit from this tax break without causing any big trouble.

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Legislation to extend unemployment benefits and a tax credit for first-time homebuyers cleared a procedural hurdle in the U.S. Senate as Democrats pushed to complete work on the measure this week.

Lawmakers voted 85-2 to move closer to a final vote on the bill, which would extend until April 30 the $8,000 homebuyer credit that otherwise would expire at the end of this month.

Senate Majority Leader Harry Reid, a Nevada Democrat, said last week he hoped both houses of Congress would pass the legislation by tomorrow.

That’s unlikely to happen if Senate Republicans, unhappy that Democrats are blocking their amendments to the plan, force the chamber through a series of procedural steps before the final vote.

In addition to extending the tax break for first-time homebuyers, the measure would let more people qualify for the credit, including some who already own homes and those with higher incomes.

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Earlier this year when federal lawmakers voted to give first-time homebuyers a tax incentive, they hoped the move would boost home sales.

And that seems to be happening.

The offer of an $8,000 tax credit – combined with low mortgage rates – has lured thousands of buyers to the beleaguered housing market.

Keller resident Joe Palacios is one of them. He and his wife are purchasing a new home.

“The tax credit was icing on the cake,” said Palacios, who’s living with friends until the couple’s four-bedroom Pulte home is finished this summer. “My wife and I were looking at apartments that were going for $1,200 a month.

“We decided why not go for a home instead?” he said. “With the mortgage rates being down so low, we had to take advantage of the situation.”

More than half a million homebuyers have been motivated by the temporary tax credit, according to the National Association of Home Builders.

And so far this year, almost half the home sales nationwide have been to first-time buyers, the National Association of Realtors reports.

The surge in buyers is welcome news in a housing market suffering its worst shakeout in generations.

“We are hoping this will help us have a better summer market,” said Teresa Costa, a real estate agent with Dallas’ David Griffin Realtors.

Ms. Costa has been talking up the $8,000 tax credit with potential buyers at an Oak Lawn condo complex she’s marketing.

“We have three units we put under contract in the last couple of weeks,” she said. “And I think all three of them are first-time homebuyers doing that.”

Real estate agent Vivian Vance with Century 21 Judge Fite Co. said the tax credit has already made a difference in her business.
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In a policy change that could benefit thousands of people, the federal government announced Friday that its tax credit for first-time homebuyers can now be used to help pay closing costs on mortgages insured by the Federal Housing Administration.

The economic stimulus bill passed in February allows first-time homebuyers a tax credit equal to 10 percent of the home’s purchase price or $8,000, whichever is less, when they file their federal income taxes. But under the plan announced Friday, buyers using FHA-insured loans will be allowed to treat the tax credit as additional down payment funds, or use it to pay for the closing costs that are typically incurred when a mortgage is funded.

“Families will now be able to apply their anticipated tax credit toward their home purchase right away,” said Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, which oversees FHA.

Donovan announced the new use for the home-buying tax credit at a meeting of the National Association of Home Builders’ board of directors, in Washington, D.C.

He also said the government is putting “safeguards in place” to ensure that lenders who are offering the tax-credit advances are not charging “excessive” fees for the service. In a letter to FHA-approved lenders, the agency said fees of more than 2.5 percent of the tax credit are excessive.

FHA loans are insured by the Federal Housing Administration and made through its approved lenders. The loans, whose upper limit is $729,750 in Santa Clara County, typically have lower interest rates than traditional mortgages.

Only qualified buyers using FHA loans can use the tax credit toward down payment or closing costs. Other buyers can take the tax credit when they file their income tax returns.

A few weeks ago, the housing industry was abuzz with news that FHA might allow borrowers to use the tax credit to replace the 3.5 percent minimum down payment required for FHA-insured loans. But the government quickly backpedaled on that idea, which would have resulted in more no-money-down, foreclosure-prone mortgages.

Friday, Donovan specified that FHA borrowers will still need to make down payments of at least 3.5 percent of a home’s purchase price. But the tax credit can be used as an additional down payment amount, which may help borrowers secure a lower interest rate on their loans. It may also be used to pay for closing costs — such as the fees charged for title searches or mortgage applications — which sometimes total thousands of dollars.

Local real estate agents said the change to the tax credit program will help the local housing market somewhat.

“Overall, it is a good thing,” said Karl Lee, a Milpitas broker who is president-elect of the Santa Clara County Association of Realtors.

But the change won’t affect the current market for bank-owned properties, he said. Recently in Santa Clara County, banked-owned, post-foreclosure properties have been garnering multiple purchase offers. And the banks prefer to accept offers on their “REO” (real-estate-owned) properties from non-FHA borrowers when possible, he said, because FHA loans usually take longer to close than traditional loans.

“It may not help with the REO piece of the market,” he said of the new use for the tax credit, “but for the rest of the market it will be a positive impact.”

The tax credit applies to home purchases that close before Dec. 1.

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