IRS Clarifies What's Needed to Claim Tax Credit

The Internal Revenue Service has clarified which documentation taxpayers need to submit to claim the $8,000 first-time and $6,500 repeat homebuyer tax credit. The new IRS policy clarified documentation that taxpayers need to submit to successfully obtain either credit:

* A fully executed IRS Form 5405 (available at http://www.irs.gov/pub/irs-pdf/f5405.pdf) on which taxpayers provide information supporting their claim of eligibility, including income and home purchase date.

* A copy of the HUD-1 Settlement Statement or other closing or settlement statement that proves the transaction took place. The IRS said the statement should show "all parties' names and signatures, property address, sales price and date of purchase." However, the IRS is not demanding that all parties’ signatures be on the HUD-1 settlement document in areas where requiring both the buyer and the seller to sign the document isn’t common. "In areas where signatures are not required on the settlement document, the IRS has clarified that it will accept a settlement statement if it is completed and valid according to local law. … The IRS encourages those buyers to sign the settlement statement prior to attaching it to the tax return.”

For repeat buyers, the IRS is seeking documentation that home buyers have lived in the previous property for a consecutive five of the past eight years. Proof can include property tax records, home owner insurance records, or mortgage interest statements.

Because of the increased documentation and monitoring, IRS processing will take four to eight weeks. Don't expect your check overnight.

NAR Basics: http://www.realtor.org/home_buyers_and_sellers/2009_first_time_home_buyer_tax_credit