IRS Instructions for Form 5405
IRS Form 5405 is part of the paperwork and documentation you must submit to claim the First Time Homebuyers Credit. This credit provides first time homebuyers with a tax credit of up to $8,000 and buyers moving from a main home owned for five or more years with a tax credit of up to $6,500. Although IRS instructions for Form 5405 may not seem difficult, it is important that you both understand and follow them carefully to avoid disqualification of your request.
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General Information
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Although there are two pages to Form 5405, you will only need to enter information on the first page when applying for the tax credit. The second page is for individuals who already received the credit and must pay it back, usually because of a change in ownership. Keep in mind that because you must submit supporting documentation at the same time you file your tax return, filling out IRS Form 5405 means you will not be able to file your tax return electronically.
Instructions
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The information you enter in the first part of Form 5405, largely a matter of checking the appropriate boxes, ensures you meet general eligibility requirements. This means that the purchase price of your home must not be over $800,000 and the purchase date of your home must be between Dec. 31, 2008 and June 30, 2010, with a closing date on or before Sept. 30, 2010. In addition, to qualify as a first time homebuyer, this must be your first home purchase within the last three years. Finally, in order to qualify, you cannot purchase the home from a relative or a relative of your spouse if you are married. The second part of the form is a 10-step process where you determine the amount of your credit and continue establishing eligibility, this time using income limitations. The calculations you perform will use a formula that analyzes your modified adjusted gross income and adjusts the tax credit as necessary. The income limit to receive the full credit is $125,000 if you are single and $225,000 if you are married and filing a joint tax return. The credit begins to phase out if your income exceeds these amounts, until it reaches $145,000, if you are single and $245,000 if you are married. At this point, you no longer qualify for the tax credit.
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Forms and Documentation
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In addition to page one of IRS Form 5405, you will also need supporting documentation to substantiate your request. This includes a settlement statement if you purchased an existing home, a retail sales contract if you purchased a mobile home or a certificate of occupancy if you built a home. Information the IRS will look for on this paperwork is the names and signatures of all participating parties, the property address, sale price and the date of purchase or occupancy. In addition, if you are a first time homebuyer, you must also send along a copy of the signature pages from your purchase contract. If you are a long-time resident, you must send in documentation that establishes residency for the past five years. This can include mortgage interest statements, property tax records or homeowner's insurance bills.
Considerations
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Once you receive your tax credit, the home must remain your principal residence for at least 36 months from the purchase date. If you move or sell the home before then, you will have to pay back the amount of the credit.
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References
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