One of the key provisions of the $787 billion stimulus package passed by Congress early this year is the $8,000 First Time Home Buyer Tax Credit. With real estate in the tank, the United States government thought a great way to stimulate the economy and the housing market would be to offer a one time lump sum payment to first time home buyers in the form of a tax credit of $8,000. I must admit that the idea is unusually solid for our boys and girls on the hill, but unfortunately it doesn’t look like they thought this one all the way through.
The name of this bill implies a couple of pretty obvious conditions, right? In order to receive this tax credit, I would have to buy a house AND this purchase would have to be my very first one. The purpose of this bill was also pretty obvious in that more houses would be bought, thus reviving a struggline economy. What’s not obvious is how this would be implemented and policed in order to avoid fraud. And man, is there some fraud going on!
In a recent investigation conducted by Congress, it would appear that tens of thousands of Americans have falsely claimed this credit on their tax returns. While some of these claims may be in err, many are undoubtedly intentional, and the IRS has already begun an extensive audit of over 100,000 returns claiming the credit. If you intend to file a tax return claiming the $8,000 Home Buyer Tax Credit, make sure not to make the following four mistakes.
You must buy a house!!! – You would think that this one is probably the most important and obvious, but so far over 19,000 claims have been received in which a house has not yet been purchased. For the IRS, it’s been awfully difficult in verifying that the home in question was actually closed upon because no documentation could be accepted electronically. If you are one of the many who received this credit without purchasing a house just yet, I urge you to make it a priority. Uncle Sam will come after their $8,000 and then some, very soon.
You must be a first time or non-recent buyer or owner of a new home – This one is a little tricky because the term “first time” does not actually mean that you’ve never owned a home before. The IRS defines a first-time home owner as somebody who hasn’t owned a home in his or her own name in the past three years. If you have owned a home less than three years prior to your new purchase, you are not eligible for this credit. The US government is looking for new owners of homes, not those with houses already in their name. Again, fairly clear, but it appears that 74,000 tax payers incorrectly filed their taxes already showing previous home ownership and applying for the $8,000 tax credit.
If you’re income eligible, take the credit yourself – In order to receive the tax credit, your modified adjusted gross income (MAGI) must be less than $75,000 (In some cases this number could be as high as $95,000). Those that still want to receive this credit have been applying for the $8,000 under their children’s names. So far, 580 claims show a taxpayer age of under 18, one of which was only 4 years old. While a dependent can claim the credit, taxpayers who are not eligible to claim the credit do not become eligible simply by using a minor child’s name. If you’re eligible, save yourself a big headache and claim the credit on your tax return. If you are not eligible for the tax credit, don’t enlist your preschooler to claim the credit.
Non-resident aliens need not apply – If you are not a resident of the United States of America, you do not qualify for this tax credit. Still, 3,200 taxpayers that file with an Individual Taxpayer Identification Number (A surefire way to tell the government you are not a resident of the US) have claimed this credit. The first step in making this right would be to get your residency, then apply for the credit. Doing this the other way around could damage your chances of remaining in the US.
All told, these four problems have caused close to 100,000 incorrectly filed tax returns, which cost the US Taxpayers $800 Million. While most of these errors will be rectified, the lack of security and implementation is causing a doubt in the minds of some Congress members to extend this bill beyond the December 1st 2009 deadline. Please make sure to have all necessary paperwork saved and available if you decide to claim this credit as there’s a very good chance that your tax return will be up for a closer look.