New Homebuyer Tax Credit Form Available

For those who purchased a home after November 6, 2009, the wait is finally over, you can now apply for your first time homebuyer tax credit with the new and improved form 5405 and its related instructions.  You can use this new form with either your 2009 tax return or an amended 2008 tax return.  However, you will not be able to e-file your 2009 tax return if this form is attached.  If you are expecting a refund in addition to the credit, filing on paper and the additional verification of form 5405 and its attachments will slow down that refund as well.

With the new form 5405, the IRS is asking you to attach proof that you actually bought the house to help deter fraudulent claims.  Examples of what they consider proof:

  • A copy of the settlement statement, preferably form HUD-1
  • A copy of the executed retail sales contract for mobile home purchases
  • For a newly constructed home, a copy of the certificate of occupancy

On these documents it is important that every line indicating the need for a signature is signed.  The IRS may reject tax returns that do not have all supporting documents signed.

The new form 5405 includes sections for long-time resident homebuyers to claim their credit as well, up to $6,500 if they have lived in the same residence for a period of 5 consecutive years out of the last 8 year period.  The IRS is also looking for some proof that you lived at the same residence for 5 consecutive years in the last 8 years so they would like you to attach the following for the 5 consecutive year period you assert:

  • Form 1098 or other mortgage interest statement
  • Property tax records
  • Homeowner’s insurance records

For more detail about the requirements refer to the instructions for form 5405 or read the IRS press release.  If you find you need additional help, please consult a licensed tax professional regarding the best decision for your specific situation.

Hurry up and wait for your home buyer tax credit!

If you bought your new home after November 6, 2009, be prepared to wait before being able to file an amended 2008 return to claim your refund for the new and improved  home buyer tax credit. The changes made to this legal provision on November 6, 2009 prompted the IRS to revise the form 5405 that is required to claim the refund.  The IRS expects this form to be available by January 8, 2010, and then you can submit your amended 2008 returns to begin the process of applying for the credit.

It is expected that the new form will require additional documentation to be attached to substantiate the legitimacy of the credit as significant fraud with regard to this credit has been suspected.  It is also notable that any tax return that has the new form 5405 attached will likely be required to file in paper.  While this is not an issue for an amended 2008 return that must be filed on paper anyway, taxpayers who include this form on their 2009 returns may experience significant delays in receiving refunds due to the delay in paper processing and the scrutiny surrounding this credit.