Pending home sales 'fell off a cliff'

Most economists and financial experts expected home sales to drop off following the April 30th Home Buyers tax credit deadline. They were right.

According to the National Association of Realtors, home sales fell an astounding 30% in May. What may be most incredible is that the sales are down 15.9% from May 2009, when we were just starting to emerge from the recession.

Tax credits, while valuable for the people who can claim them, usually do not impact behavior all that much. People will buy homes if it makes sense for them, not just because they may get a tax break. That logic holds true here. The Home Buyers credit did not motivate new sales. Instead people who were already planning to buy a home simply changed the timing of when they would buy. So, there was a rush to close the sale before the credit expired. People who may have waited until later in the year already closed the deals. Frankly, I don’t think the huge drop in pending sales should be surprising.

Lawrence Yun, the chief economist for NAR believes that home sales will improve once the economy is more stable and unemployment drops. Once that happens, Yun expects home sales to increase dramatically, so long as the favorable prices and mortgage interest rates continue.

Makes sense to me, you can’t buy a home if you don’t have a job. Do you think our real estate market will reach the highs of 2006 again in our lifetime? Tell me your predictions at @ronideutch/Twitter or on Facebook.

You can find out more here.

200,000 could lose out on homebuyer tax credit

Many homebuyers, as many as 200,000 buyers according to CNN Money.com, could lose out on the $8,000 homebuyer tax credit. This is because many people are trying to purchase short sales, buying homes from sellers who owe more on their mortgage than the home is worth. Despite the name “short sale,” these deals often take a long time for the lender to approve. It could be anywhere from two to six months. This lag time could mean that buyers will lose out on the tax credit because their pending deals won’t be finalized by the June 30th deadline. Taking even more time are the home inspections. The average foreclosed home comes with many problems to repair, and fixing the issues takes time, slowing the process even further.

Richard Smith, CEO of Realogy, the parent company of several franchise real estate brokers started warning buyers back in January that short sales may not close in time to take the credit.

Read the full article here.

Prisoners cashed in on homebuyer tax credit

During many of my tax season interviews, I warned taxpayers claiming the first-time homebuyer credit to beware of IRS audits—even back then it was common knowledge that the IRS would be paying extra close attention to every tax return claiming the first-time home buyer credit. Of the fraudulent tax credit request found by the IRS were made by state and federal prisoners—and the numbers are astounding!

According to a Treasury Department report released Wednesday reported by CNNMoney.com, the inmates defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers.

4,608 state and federal inmates tried to file for the first-time home buyer tax credit. 1,295 of them actually received the fraudulent refunds. 241 of those inmates were serving life sentences!
The Treasury’s inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was given out improperly.

The problem was particularly bad in Florida: 61% of the “lifers” who received credits were incarcerated in the Sunshine State.

"It is possible for an inmate to buy a house while in prison," said Jo Ellyn Rackleff, spokeswoman for the Florida Department of Corrections. "…Many of the inmates have families with children who live outside." She said that one of the reasons why Florida inmates feature prominently in the Treasury report is because the Florida prison system is transparent in providing inmate information to the IRS.

However, it wasn’t just prisoners filing faulty homebuyer credit claims, the report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in. The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million.

The report also found that improper filers included 34 employees of the IRS! This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.
More according to CNNMoney: the report included a response from the IRS, which highlighted the huge scope of the program, with $12.6 billion in claims awarded to 1.8 million participants. The IRS said it had ramped up efforts to crack down on criminal activity and would continue to review claims and "recapture" pay-outs determined to be fraudulent.

The IRS claims to be working on finding the identities of the agency employees who are at fault for questionable or fraudulent claims.

Read the full article here:

Californians get Improved $10,000 Home Buyer Tax Credit

My home state of California recently extended a home buying credit that had expired last year. The bill (AB 183) was signed into law by Governor Arnold Schwarzenegger and is due to take effect on May 1^st, 2010. According to this article on The Californian.com, the law extended the credit to all homebuyers, not just first-time homebuyers.

"I have been up and down the state pushing this important housing bill that will get people off the fence and into homes while creating jobs and stimulating our economy, and today I am proud to take action and put it into law," Schwarzenegger said at the legislation's signing ceremony last month.

The new law's $200 million allocation is split 50/50 between eligible first-time home buyers who purchase an existing home and anyone purchasing a new home. First-time buyers are defined as those who have not owned a home in the past three years.

Unfortunately, the immediately obvious flaw in California's home-buying carrot is that it takes effect May 1, the day after the existing and also expanded federal home-buyer tax credit is scheduled to end.

When both the California and federal home buying tax credits were available simultaneously, Californians struck a tax credit motherlode — total tax credits of up to $18,000.

The first $100 million tax credit, approved in February 2009, was only for first-time home buyers who purchased new homes. Funds ran out after just four months, with 10,659 Californians claiming the credit, according to the Franchise Tax Board.

30 Days and Counting: Homebuyer Tax Credit Expires

Time is running out to claim the popular first time homebuyers tax credit. Taxpayers thinking about claiming the credit only have 30 days to enter into a contract, and the sale has to close escrow before the end of June in order to quality. CNN Money posted a story discussing the upcoming deadline. You can checkout a section of their article below, or click here for the full text.

Attention shoppers: You have barely a month left before the homebuyer tax credit expires. But depending on where you live, you might not want to rush out to buy.

First-time homebuyers may qualify for up to $8,000, while those who are trading up could get as much as $6,500. But either way, buyers have to ink sales contracts by the end of April and close before July 1 to see the refund.

And this is absolutely, positively your last chance to claim the credit. (Probably.) So don't wait, thinking the credit will be extended for a third time.

There is little sentiment for continuing this program, especially because many consider the latest iteration's results to be disappointing. Even the Senate's biggest proponent of the homebuyer tax credit, Johnny Isakson, R-Ga., is ready to let it end.

"He has no plans to introduce legislation to extend the credit," said Isakson's spokeswoman. "Part of the benefit of the tax credit was the urgency its sun-setting generated."

That urgency was less pronounced after the latest extension, which was enacted last fall. While the first version, which just covered first-time homebuyers, netted huge sales jumps, the real estate market slumped over the winter and early spring.

Top 10 Tax Stories of 2009

Now that the year 2010 has begun, I figured it would be interesting to look back at the most popular tax stories covered in my blog last year. Listed below are the top 10 tax stories of 2009, along with links to the various entries I posted on each topic. If you can think of another story that should be on the list, then send me a message on my Twitter profile.

1. The Housing Marketing and Homebuyer's Credit

The U.S. housing market keeps financial bloggers – like myself – captivated throughout the year. Back in early February, newly inaugurated President Obama launched a $75 billion foreclosure rescue plan to help American’s stay in their homes. However, foreclosures continued to trouble the country and drastically reduce home values across the country. In January the housing market began to show signs of recovery, and as the November 30^th deadline for the first-time homebuyers credit loomed, home sales rose to a two-year high. However, before it expired Congress passed the Worker, Homeownership, and Business Act that extended the credit, and also created a lesser credit for taxpayers seeking to purchase a second home.

2. Auto Bailouts, Cash for Clunkers, and Special Deductions

Early in 2009 there was criticism of Obama’s plan to help General Motors and Chrysler stay afloat. It was even reported that taxpayers could lose up to $80 billion dollars in the automobile industry bailouts. However, taxpayers seem to forget about their concerns when Congress launched the Cash for Clunkers program, that gave Americans a credit to trade in old gas guzzlers for new, energy efficient vehicles. Even though the enormously popular program expired, there were still plenty of tax incentives to buy a car in 2009, including the ability to deduct sales tax paid on new vehicle purchases.

3. Joe Francis' Tax Problems

2009 was the year of celebrity tax problems. From former boy band member Lance Bass, to actor Nicolas Cage, to California's Governor Arnold Schwarzenegger, no one was exempt from having to pay the taxman. However, one celebrity tax evader seemed to generate more media attention than the rest, Joe Francis (creator of the Girls Gone Wild pornographic video series). Initially Francis blamed his financial woes on former employees, but later in the year he grabbed headlines again with his intent to sue the IRS.

4. Health Care Reform

Along with many other tax bloggers, I have discussed the topic of health care reform on my blog dozens of times throughout 2009. Improving the country’s health care was one of Obama’s campaign promises and is one that has captured the attention of Americans. While we will have to wait until Congress returns from their winter break to see if any legislation becomes law, you can check out this entry on the House of Representative’s Paying for the Affordable Health Care for America Act, or this entry explaining the Senate’s Patient Protection and Affordable Care Act.

5. California's Budget Problems

Between furlough days, and tax increases, California’s budget problems have become one of the major tax stories of the past year. In February the state legislators passed a budget, with billions of dollars in spending cuts, and over $12 billion in new state tax increases. Unfortunately, the cuts – especially furlough days – have had a drastic affect on Sacramento’s economy, where many of the capitol city’s workers are employed by the State. Additionally, later in the year it was reported that California’s revenue is falling short of what was expected, which will undoubtedly lead to budget problems in 2010.

6. USB Settlement and Taxpayer Amnesty Program

Shortly after taking office President Obama announced his intention to crack down on offshore tax evaders, and his administration certainly delivered. After months of negotiations, the U.S. Treasury Department reached a deal with UBS – the largest Swiss Bank – to turn over the names of thousands of taxpayers that had illegally avoided paying income taxes. The IRS then created an amnesty program allowing taxpayers to turn themselves in to avoid harsher punishment.

7. Ongoing Unemployment Rate Increases

Unfortunately, high unemployment rates have been an ongoing problem in 2009. In November, President Obama even announced that there would be even more job losses before the unemployment rates would improve. The Obama administration does assert that their programs have helped saved nearly 700,000 jobs this year. However, in December a study from UCLA suggested that unemployment rates could stay above 10% throughout 2010.

8. TARP Funds, Executive Bonuses, and Repayment

Early in 2009, taxpayers across the country were angered upon reports that AIG, a company that had recently received billions of dollars through the TARP Program, was giving out million dollar bonuses to dozens of executives. The U.S. Senate even considered taking action such as a new bonus tax. However, as the year continued the TARP Program began to create positive headlines when in June ten banks began paying the federal government back. Later in December, Bank of America even announced its intentions to repay TARP funds it had received.

9. Tax and Spending Protests

On April 15^th, thousands of American taxpayers reportedly participated in the T.E.A. parties. Afterwards the GOP was quick to plan additional protests. Then, on July 4^th dozens of taxpayer protests took place across the country, and months later in September thousands of taxpayers marched to the U.S. Capitol to protest the federal government’s spending.

10. Lack of Action on the Estate Tax

Towards the end of the year the estate tax became a very popular topic in the tax blogosphere. As I explained in this blog entry, Congress failed to pass any legislation on the estate tax, meaning it will not be in effect for the year 2010. However, on January 1^st, 2011 it will return at rates higher than in the early 90’s. Although the House of Representatives passed legislation creating a permanent solution, the Senate did not follow suit. As the year came to an end, there were even reports of ill taxpayers clinging to life, while their families debated the tax consequences of keeping them on life support for a few extra days.

Questions for the Tax Lady: December 14th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: My husband and I are purchasing a new home. We already own another property, so will we be eligible for the new $6,500 credit if we close before the end of the year?

Yes. The Homeownership and Business Assistance Act of 2009 was signed into law on November 6^th, 2009, and became effective immediately. As long as you and your husband have been living in your principal residence for five years you should qualify for the credit. However, keep in mind that the credit does begin to phase out for couples making $245,000 or more per year.

Question #2: My business had a really profitable month. Do you have any ideas on last minute expenses to help lower my taxable income?

Depending on how many purchases you want to make, you could consider office furniture or computer equipment. Alternatively if you are looking for something cheaper, you could pay your January office rent early, or any other major bills such as your telephone service fee. On the other hand, you could defer some of your income until next year by waiting until after the end of the month to cash a check or two.

U.S. Home Sales Rise to Two-Year High on Tax Credit

After struggling for the better part of the last two years, it looks like the real estate industry is finally rebounding as the third quarter of this year represented the largest increase of home sales in two years. Much of this increase can likely be attributed to the homebuyer’s credit, which was due to expire at the end of this month. However, other financial experts are asserting that many of the buyers who used the credit would have purchased a home anyways. Checkout the following story from Bloomberg.com on the new report.

U.S. home sales increased 11 percent to a two-year high in the third quarter as an $8,000 tax credit for first-time buyers boosted demand.

Sales of existing single-family homes and condominiums increased to 5.3 million at an annualized, seasonally adjusted rate from the previous quarter, the National Association of Realtors said today. The median price fell 11 percent from a year earlier to $177,900, the Chicago-based trade group said.

Distressed sales accounted for 30 percent of all transactions, down from 36 percent in the second quarter, the Realtors said. President Barack Obama signed legislation on Nov. 6 extending the housing credit that was set to expire at the end of this month. Demand from buyers seeking to use the benefit reduced the inventory of previously owned homes for sale to 3.63 million in September, the lowest since January, the group’s data show.

“What the tax credit did was make the housing market stronger by borrowing from future sales,” said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. “There’s payback after it expires in 2010 -- we’ll see weaker demand.”

The sales gain to 5.3 million was the highest since the third quarter of 2007, when sales were 5.45 million.

Questions for the Tax Lady: November 9th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: If my wife and I sell our house this year and buy a new one, can we claim the $8,000 extended homebuyers credit?

Answer: No, you will not be eligible for the $8,000 credit. However, when Congress extended the credit they also created a new $6,500 credit for property owners who have lived in their home for at least five consecutive years. Therefore if you and your wife have lived in your home for five years then you may be able to take advantage of the new, lesser credit.

Question #2: What are the new income limits for the first-time homebuyers credit?

Answer: In the new bill, the income limits for eligible homebuyers were expanded to $125,000 for single buyers and $225,000 for couples. The old credit had $75,000 and $150,000 limits.

President Obama Signs Worker, Homeownership, and Business Act

Last Friday, President Obama yesterday signed the Worker, Homeownership, and Business Act of 2009 (H.R. 3548) into law. According to the Tax Professor, this new law has seven major tax provisions, in addition to extending the homebuyers credit. All of the tax changes are listed below.

1. Extension and Modification of First-Time Homebuyer Credit

2. Five-Year Carryback of NOLs

3. Exclusion from Income of Qualified Military Base Realignment and Closure

4. Delay in Application of Worldwide Allocation of Interest

5. Modification of Penalty for Failure to File Partnership or S Corporation Returns

6. Expansion of Electronic Filing by Return Preparers

7. Time for Payment of Corporate Estimated Taxes

Property Buyers in US Rush to Beat Deadline for First Time Tax Credit

Realtors and buyers are in a dead rush to meet the deadline for the homebuyers tax credit at the end of this month. Since there has not yet been a final decision about extending the credit, thousands across the country are trying desperately to close escrow before the looming deadline. However, as PropertyWire.com reports, many of them are finding out that they are simply too late.

The latest figures from the National Association of Realtors (NAR) show that its Pending Home Sales Index rose to 110.1 in September, its eight consecutive monthly rise.

The index now stands at the highest level since December 2006 when it was 112.8 and is 21.2% higher than September last year, marking the largest annual gain on record.

But it could be a short-lived blip as many analysts believe that the recovery in the US housing market is being propped up by the first time buyer tax credit that was introduced by the Government to boost demand for houses.

‘What we’re witnessing is a rush of first-time buyers trying to beat the expiration of the tax credit at the end of this month,’ said Lawrence Yun, NAR chief economist.

Meanwhile, the foreclosure crisis is moving into small towns and suburbs which have previously been untouched by the economic downturn, according to new research.

Administration to Decide on Housing Tax Credit Soon

Despite pleas from thousands of homebuyers and intense lobbying, the Obama administration and those deciding the fate of the first time homebuyers tax credit are not ready to make a decision just yet. According to MarketWatch.com, Housing and Urban Development Secretary Shaun Donovan said earlier this week that the administration does not have the information they need yet to make the decision, and will not have that information for a few weeks.

"We understand the urgency of this situation," Donovan said at a Senate Banking Committee hearing, according to Congressional Quarterly. "And we believe that within the next few weeks, we will have additional data that will allow us to sit down with you" and discuss whether and how to extend the credit, said Donovan, according to CQ.

Sens. Christopher Dodd, D-Conn., and Johnny Isakson, R-Ga., have proposed extending the $8,000 credit through the end of next June. Created by the economic stimulus package signed by President Barack Obama in February, it's now set to expire on Nov. 30.

"The credit is set to expire in five weeks," said Dodd. "But the work of stabilizing the housing market won't be done. We still need to use every tool at our disposal to try and fix this problem," Dodd said.

The hearing came after the Commerce Department reported that new construction on U.S. housing units was essentially flat in September, at a seasonally adjusted annual rate of 590,000. See full story.

Following 14 straight quarters of declines, many economists expect that residential investment will finally add to U.S. growth in the current quarter, which ended in September.

Questions for the Tax Lady: October 12th, 2009

Check out the following new Questions for the Tax Lady answers and feel free to ask me questions through one of the links below. You can send me an email, direct message or @ reply, and I will do my best to get an answer for you!

Question #1: I owed the IRS thousands, and I want to hire an attorney but I am afraid I will not have enough money to afford the retainer fee. How much does it usually cost to hire an attorney?

Answer: The amount you will pay is going to depend on the attorney you hire. Typically an attorney, or law firm, with a lot of experience helping taxpayers settle their debts will cost a little more then an inexperienced lawyer or enrollment agent. Additionally, the amount of time it takes the attorney to work on your case will also influence fees.

Question #2: Is it true that I can use my federal tax credit to help pay for closing costs on my new house?

Answer: Yes. If you do not want to have to wait until April to collect your Federal tax credit, then you can elect to use it to pay for your closing fees or even part of your down payment. However, it can be a tricky process, and not all loan companies can handle it. If you do want to use your credit upfront then be sure to speak with your loan agent as soon as possible. For more information on the topic, check out the following article from Lending Tree.com.

How to use tax credit at closing

To use the tax credit at closing, home buyers must obtain a loan that's insured by the Federal Housing Administration (FHA). To obtain an FHA-insured loan, be sure to apply through an FHA-approved lender. Keep in mind that not all lenders can accommodate using the tax credit at closing. If you're interested in applying the tax credit to your closing costs, ask your lenders in advance. You may also want to consider working with a state housing finance agency that enables the tax credit to be applied towards closing.

The credit can't be used toward the first 3.5 percent of the down payment on an FHA loan. That means borrowers who want to use the tax credit as a down payment must still bring at least that amount to the transaction in addition to the tax credit. The 3.5 percent down payment must come from the buyer's own funds or a gift, subject to FHA rules. However, if the borrower obtains a loan through a state housing finance agency, the minimum down payment requirement to use the tax credit at closing may be waived.

Nearing an End: The First-Time Homebuyers Credit

Early in the year Congress enacted an $8,000 tax credit for first time homebuyers purchasing a house between January 1st and November 30th of this year. As you can tell, that November deadline is just around the corner. In order to qualify, your house must close escrow on or before that date. The IRS even states, “you may not claim the credit in anticipation of a purchase that has yet to happen.”

Beating the Deadline

If you plan to take advantage of the credit but have not already begun the process of buying a home, you are probably too late. Even after you have an accepted offer, and approval on a loan, it can take 30 to 60 days to close escrow. Additionally, title and escrow companies are being swamped with purchases that need to be completed before December 1st, which will likely cause delays if you are trying to close escrow at the last minute.

On the other hand, if you have already begun the process then there are a few things you can do to make sure you beat the deadline. Depending on what stage in the game you are at, you want to make sure that you have all of your ducks in a row. Tell your real estate agent, loan officer, and title company that you are in a hurry and push for as short of a close of escrow as possible.

Qualifying as a "First-Time" Homebuyer

There has been a lot of confusion over the phrase "first-time" homebuyer, as you can actually qualify for the credit if you have bought a home in the past. As long as you have not owned your principal residence within the last three years, then you qualify for the credit. This means, that if you owned rental property and have rented it out for the past three years while residing elsewhere (in property you do not own), you qualify for the credit. So, if you purchased any property this year, then I would highly recommend speaking with a tax professional to find out if you qualify or not. You may be pleasantly surprised.

Non-Houses Qualify Too

As I mentioned before, if you purchased any property in the past year you may qualify for the credit. It actually applies to multiple different types of property including condos, townhouses, motor homes, and even houseboats. As long as the property is your principal place of residence, you can qualify for the credit. Therefore, a summer or vacation home would not qualify.

Income Limits

In order to qualify for the full $8,000, your adjusted gross income (AGI) needs to be under $75,000 for single taxpayers and $150,000 for married filing jointly. If your income is above those limits, then the amount of the credit will be reduced depending on exactly how much money you made this year. If your AIG exceeds $95,000, or $170,000 for married couples filing jointly, then you will not qualify for any of the credit.

Instant Money vs. Waiting

If you are in the process of purchasing a home then you may not have to wait until next year to get the credit. You actually have a few different options. First of all, the IRS will allow you to claim the credit on your 2008 return, meaning you can amend your old return and get the money within a few weeks. Alternatively, if you are taking advantage of an FHA loan then you can use the credit towards your closing costs, or for an additional down payment. Finally, you could wait and claim the full $8,000 credit on your 2009 tax return this April.

Future of the Credit

As the credit's expiration date gets closer and closer, many are pushing Congress to extend and expand the credit. In fact, the National Association of Realtors and the National Association of Home Builders have spent a lot of time and money lobbying Congress. They are hoping to get the credit extended into 2010, raise the amount to $15,000, and make it available to all homebuyers. Senator Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, and Senator Johnny Isakson (R-Ga.) have sponsored a bill that would expand the credit, but it is very unlikely any legislation will get passed into law before the November 30th deadline.

Homebuyer Tax-Credit Extension Gains Lawmaker Support

Senators are working to make sure that lawmakers are aware of the November 30^th deadline for the first time homebuyers tax credit. Sen. John Isakson, a Republican from Georgia, along with a few other Senators, are pushing to extend the $8,000 credit, which they claim drastically increase homes sales over the past year.

“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”

Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.” Executives including Fannie Mae’s Michael Williams and Hyperion Partners LP’s Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it.

“If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession,” Isakson said. December “marks the beginning of the historical worst time for home sales,” he said.

White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.

Continue reading at Bloomberg.com…

Pending Home Sales Hit 6th Straight Increase

Yesterday a new report was published with more good news for the real estate market. According to the study, more Americans bought homes in July than in June, which represents the sixth straight month that there was an increase in home sales. Many experts claim that the increase is a direct result of the first-time homebuyers credit that expires at the end of the year. Checkout the following article from CNN on the recent findings.

The pending home sales index from the National Association of Realtors rose 3.2% in July after rising by 3.6% in June. That's 12% higher than July 2008, and it marks the sixth straight increase since record-keeping began in 2001.

The reading far exceeded forecasts of economists surveyed by Briefing.com, who predicted a 1.5% increase. Signed real estate contracts often take many weeks or months to complete, so they are considered a forward-looking indicator.

Momentum in the housing market has clearly turned for the better, said NAR chief economist Lawrence Yun, in a written statement.

"The recovery is broad-based across many parts of the country," Yun said. "Housing affordability has been at record highs this year with the added stimulus of a first-time homebuyer tax credit."

The first-time homebuyers tax credit, passed earlier this year as part of the economic stimulus package, is worth 10% of the home purchase price up to $8,000. People who have not owned a home in the previous three years are eligible for the credit.

However, the tax credit expires on Nov. 30 and it usually takes about 90 days to close on a house after a contract is signed. As of Sept. 1, there were only 90 days left before the credit ends.

Fraudulent First-Time Homebuyer Credit Leads to Prosecution

As I have mentioned before, the IRS has been aggressive in going after people who are falsely claiming the first-time homebuyer credit. In fact, yesterday they announced their first successful prosecution related to the fraud. They are hoping that in doing so they can send out a warning message to taxpayers across the country.

According to the IRS, on Thursday July 23, 2009, a Jacksonville, Fla.-tax preparer, James Otto Price III, pled guilty to falsely claiming the first-time homebuyer credit on a client’s federal tax return. Price faces the possibility of up to three years in jail, a fine of as much as $250,000, or both.

To date, the IRS has executed seven search warrants and currently has 24 open criminal investigations in pursuit of potential instances of fraud involving the credit. The agency has a number of sophisticated computer screening tools to quickly identify returns that may contain fraudulent claims for the first-time homebuyer credit.

“We will vigorously pursue anyone who falsely tries to claim this or any other tax credit or deduction,” said Eileen Mayer, Chief, IRS Criminal Investigation. “The penalties for tax fraud are steep. Taxpayers should be wary of anyone who promises to get them a big refund.”

Whether a taxpayer prepares his or her own return or uses the services of a paid preparer, it is the taxpayer who is ultimately responsible for the accuracy of the return. Fraudulent returns may result not only in the required payment of back taxes but also in penalties and interest.

First-Time Homebuyers Have Several Options to Maximize New Tax Credit

The IRS released a new press release recently, discussing tax options for first-time homebuyers. Check out the text of the release below.

As part of the Treasury Department’s consumer outreach effort and with the April 15 individual tax filing deadline approaching, the Internal Revenue Service today began a concerted effort to educate taxpayers about additional options at their disposal to claim the new $8,000 first-time homebuyer credit for 2009 home purchases. For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.

The Treasury Department encourages taxpayers to explore these options to maximize their credit and get their money back as fast as possible.

“The new credit can get money in the pockets of first-time homebuyers quickly,” said IRS Commissioner Doug Shulman. “For people who recently purchased a home or are considering buying in the next few months, there are several different ways that they can get this tax credit even if they’ve already filed their tax return.”

First-time homebuyers represent a significant portion of existing single-family home sales. The expansion in the first-time homebuyer credit will make it easier for first-time homebuyers to enter the housing market this year.

Under the American Recovery and Reinvestment Act of 2009, qualifying taxpayers who purchase a home before Dec. 1 receive up to $8,000, or $4,000 for married individuals filing separately. People can claim the credit either on their 2008 tax returns due April 15 or on their 2009 tax returns next year.

The filing options to consider are:

File an extension. Taxpayers who haven’t yet filed their 2008 returns but are buying a home soon can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. Even with an extension, taxpayers could still file electronically, receiving their refund in as few as 10 days with direct deposit.

File now, amend later. Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit.

Amend the 2008 tax return. Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

Claim the credit in 2009 rather than 2008. For some taxpayers, it may make more financial sense to wait and claim the homebuyer credit next year when they file the 2009 tax return rather than claiming it now on the 2008 tax return. This could benefit taxpayers who might qualify for a higher credit on the 2009 tax return. This could include people who have less income in 2009 than 2008 because of factors such as a job loss or drop in investment income.

The IRS reminds taxpayers the amount of the credit begins to phase out for taxpayers whose modified adjusted gross income is more than $75,000, or $150,000 for joint filers. Taxpayers can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

IRS.gov provides more information, including guidance for people who bought their first homes in 2008. To learn more about the overall implementation of the Recovery Act, visit www.Recovery.gov.