The First-Time Homebuyer Credit will jump up and bite you in the shorts at least six times this next tax season, Doug Van Der Aa told attendees at the Thomson Reuters Users Conference.
Van Der Aa, CPA, JD, a former tax manager with the Grand Rapids, Mich., firm of Hungerford, Aldrin, Nichols & Carter, PC, CPAs and Consultants, and currently a seminar leader at Federal Tax Workshops Inc., described several of the lesser known features of the tax credit, which has helped spur home sales since 2008.
The credit comes in several forms, with extensions added to provide additional time for closing and for armed services personnel serving overseas.
The original credit was really an interest-free loan, with a pay-back feature, explained Van Der Aa. The second credit changed things going forward to make it a real tax credit. After an initial review, the IRS found the credit to be a happy hunting ground for fraud, he explained. Drifters, guys serving time in the big house and three-year-old children were claiming the credit, so now everyone gets pre-audited, he said.
People forget about the first $7,500 credit, and now have to start paying it back to the tune of $500 a year, he noted. The problem is, if a preparer gets any new clients and looks at their past-year returns, this won't show up, cautioned Van Der Aa. And then we have the other recapture rule. People are hearing, and realtors are telling them, that if they stay in the house for 36 months they dont have to pay it back. Thats true of the new credit, but they still have to pay back the old one, and if they sell the house or move out, the credit is accelerated, he said.
Moreover, the credit liability doesnt show up on a typical title search, so many taxpayers are taking the proceeds from one house and putting everything down on a new house, without being aware of the acceleration. No realtor in town will tell them about this because it will slow down the deal and could affect financing, said Van Der Aa.
The word for preparers is to be aware of the snags that could arise, and ask the right questions, according to Van Der Aa. Even though its not their fault, preparers are the ones who the taxpayer will blame, he said.
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