July 25 , 2010 - My wife and I signed a contract to buy our first home before May 1, 2010, hoping to qualify for the $8,000 First-Time Homebuyers credit. However, it's taken forever to obtain our loan, and, we were not able to close by the June 30, 2010 deadline. Is it true that Congress may extend the deadline, or do we lose our credit?

Good news, The "Homebuyer Assistance Improvement Act of 2010," which extends the deadline for the closing date for first time homebuyers from June 30, 2010, to September 30, 2010, was signed into law July 2, 2010. As a result, if a First-Time Homebuyer entered into a contract before May 1 st and closes on the home before October 1 st , they may still claim the credit.

Originally, a First-Time Homebuyer who can claim the lesser of $8,000 or 10% of the purchase price of the home as a refundable credit is an individual or married couple who has not owed a home in the past. However, the law was expanded last year to also allow a "long-time resident" to claim a credit for purchases after November 6, 2009. These qualifying buyers include an individual or married couple who maintained the same principal residence for 5 consecutive years within the 8 year period ending on the date of the purchase of the new residence. The credit for a long-time resident is the lesser of $6,500 or 10% of the purchase price of the new home.

The credits are phased out if a buyer's income is between $125,000 - $145,000 for singles, and $225,000 - $245,000 for joint filers. Dependents, those under the age of 18 on the date of purchase, and property purchased from a related person do not qualify for the credit.

On the same day that the Homebuyer Assistance Improvement Act was signed, the IRS issued a reminder about the special filing and documentation requirements that apply in claiming the credits and to take advantage of the new law relief. In order to claim the credit, the taxpayer must file Form 5405 with their tax return, and include the following documents:

.• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. (Normally, this is Form HUD-1)
• For mobile home purchasers who are unable to get a settlement statement, a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase will be accepted.
• For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner's name, property address and date of the certificate will be accepted.

• A taxpayer who is closing before October 1 st must also include a copy of the pages from the contract signed before May 1 st which show all parties names and signatures, the property address, the purchase price, and the date of the contract.

• A taxpayer claiming the $6,500 credit should include either Form 1098, Mortgage Interest Statement (or substitute statement), property tax records, or homeowner's insurance records for the 5 consecutive years of the 8 year period ending on the purchase date of the new home.

Taxpayers have three options for claiming the credit for a home purchased in 2010:

If the 2009 Form 1040 has not yet been filed (it has been extended or is simply late), the taxpayer can claim it on this form. The form cannot be e-filed when claiming this credit.
If the 2009 return has already been filed, Form 1040X can be filed to amend the 2009 Form 1040 to reflect the credit.
Whether or not the 2009 return has been filed, a taxpayer can wait to claim the credit on the 2010 Form 1040.

It should also be noted that, as there is a very large number of taxpayers filing to claim this credit, it can take anywhere from 4 weeks to 4 months or more for the Internal Revenue Service to process returns claiming this credit.

Return to Tax Talk.