On June 30, Congress passed H.R. 5623, the Homebuyer Assistance Improvement Act of 2010, and President Obama has now signed it. The new law provides the first-time homebuyer credit to taxpayers who were in contract before May 1 but couldn’t meet the June 30, 2010, closing date as required in the prior law.
Homebuyer Tax Credit
Under the previous law, the first-time homebuyer credit of $8,000 and the reduced credit of $6,500 for long-term residents generally expired for homes purchased after Apr. 30, 2010. However, with contracts to purchase a principal residence entered into before May 1, 2010, the credit could be claimed if the purchase closed before July 1, 2010.
Under the new law, homebuyers who entered into a contract before May 1, 2010 may claim the credit if the purchase is closed before Oct. 1, 2010. Thus, this extension allows homebuyers who signed a contract before the April 30th deadline to complete their closing by the end of September. The three-month extension of the closing date provides tax relief for those who couldn’t close on time because of backlogs at lenders and federal programs involved in homebuyer loans.
Congress has offset the cost of the tax credit with revenue raisers that include expanding the bad check penalty to cover electronic payments and providing for disclosure of prisoner return information to state prisons.
Claiming the Homebuyer Credit
Taxpayers who wish to claim the homebuyer credit on their 2010 individual tax return will be required to complete IRS Form 5405 as well as include one of 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 the properly executed Form HUD-1, Settlement Statement.)
- 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.
- 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.
Long-time homeowners who purchased a new principal residence and wish to claim the homebuyer credit must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home.