New IRS rules for Tax Credits
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New guidelines were issued this month by the IRS ….
…. for the two tax credit programs for first-time homebuyers and existing homeowners. When Congress revised the programs in November, the IRS was instructed to tighten its rules and monitoring to prevent widespread frauds that had occurred since early 2009.
Some of the abuses included fictitious home purchases where people claimed and received $8000 checks on transactions that never happened. In some cases, fraud ringleaders were submitting multiple claims and splitting the tax credit with people who had no financial ability to purchase a home.
To avoid such abuses in the future, the IRS is listing documentation standards in detail and installing monitoring systems to detect fraud upfront. Those include:
1. A fully executed IRS form 5405 which requires taxpayers to provide basic information supporting their claim of eligibility, including income and home purchase date.
2. A copy of the "HUD-1 Settlement Statement" that proves the transaction really took place. The IRS said it should show all parties names and signatures, property address, sales price and date of purchase.
Customs vary from state to state and sometimes the HUD-1 does not contain both buyer's and seller's signatures on it, especially in escrow states like California. The IRS tried to address this issue in February by loosening up this requirement. They will accept a settlement statement if it is completed and valid according to local law.
According to the National Association of Realtors, 1.5 million repeat purchasers and 900,000 first-time homebuyers are expected to apply for credits this year nationwide. Because of the increased documentation and monitoring, IRS processing will take between four to eight weeks.
Erin McBratney
Search for homes in San Diego
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