Monday, October 19, 2009

WSJ: IRS Examining Many Suspicious First-Time Homebuyer Tax Credit Claims

by Bill McBride on 10/19/2009 08:48:00 PM

John Mckinnon at the WSJ reports: Home-Buyer Credit Is Focus of Inquiry

The Internal Revenue Service is examining more than 100,000 suspicious claims for the first-time home-buyer tax break ...
The tax credit is completely refundable, even if the homebuyer has no tax liability - and this makes it a target for fraud. From the IRS:
"[The tax credit is] fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed."
Also, the credit is separate from the closing, and the WSJ article suggests this is contributing to the "widespread" fraud.
Bonnie Speedy, national director of AARP Tax-Aide ... suggested that abuse of the home-purchase credit appeared to be widespread ...
And - not mentioned in the article - the homebuyers are required to pay back the tax credit if they do not own and live in the home for three years ... so there will probably be more fraud in the future. More IRS:
The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence.
emphasis added
I hope these people stretching to buy - like the buyer mentioned in the previous post paying 54% of her income for her house, including multiple jobs - realize they have to pay back the entire credit if they don't own and occupy the home for three years.