How Does the IRS Verify First Time Homebuyer Qualification?
The housing market bubble created quite a bit of uncertainty for nervous homebuyers. And in an effort to encourage homebuyers to invest in the housing market, the government stepped in and approved a tax credit to incentivize first time home purchases. In exchange for purchasing a home, taxpayers receive a generous tax credit. However, in an effort to reduce fraud, the IRS does require some authenticating documentation before approving taxpayers for the credit.
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Documentation to Attach to Return
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To claim the first time home buyer's credit, you must complete your form and attach form 5405 to your return. Also, attach your settlement statement, otherwise known as HUD-1, to your income tax return. Make sure that both the signatures of the buyer and seller are on the statement. If you bought a mobile home, then attach a copy of your retail sales agreement to your tax return. If the home was a newly constructed home, then attach a copy of your occupancy agreement which shows your name, property address and the date of the certificate.
Additional Documentation
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If you check the "yes" box in section C, then you should attach all the pages from your signed contract to the return. The pages should include the names of all the parties, the property address, signature, the date of the contract and the purchase price. Taxpayers who are claiming the credit as a long-time resident home should attach their mortgage interest statement, and property tax records or insurance records for five consecutive years of the eight-year period ending at the purchase of their new primary home.
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Warning
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Some taxpayers will be forced to repay the first time homebuyers credit. Taxpayers who are responsible for repaying the credit will receive a notice in the mail informing them of their duty to repay. In addition, you cannot claim the credit if the purchase price of your home exceeded $800,000.
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