First Time Homebuyer Credit Allocation

[KBTS]

Just received this from the IRS in regards to allocating the credit between two unmarried purchasers:

http://www.irs.gov/pub/irs-drop/n-09-12.pdf

[Jesse]

Thanks for the link, that clears up a few questions.

[veritas]

I'm sorry

But I refuse to call this a credit.

It's a loan.


Enticing more people into more debt is not what is needed.

[solomon]

It's a loan.


Enticing more people into more debt is not what is needed.

May be. The House Democrats hopeful spending of the 825 billion recovery plan includes no pay back of the 7500. Hopefully, at least that part will not make it into law.

[Black Bart]

Payback

May be. The House Democrats hopeful spending of the 825 billion recovery plan includes no pay back of the 7500. Hopefully, at least that part will not make it into law.

It probably won't make any difference what the law says. Odds are that many people getting this (already financially strapped) will never ever manage or even try to shepherd this thing through 15 years. Lots of them will go to a different preparer and simply not mention it; leaving IRS to match up info a year and a half later and then try to collect from someone who has/had nothing in the first place -- then imagine this scenario every year from then on. I'll bet even IRS collections (as tough as they are) will throw in the towel on these things before the debtors do.

[solomon]

It probably won't make any difference what the law says. Odds are that many people getting this (already financially strapped) will never ever manage or even try to shepherd this thing through 15 years. Lots of them will go to a different preparer and simply not mention it; leaving IRS to match up info a year and a half later and then try to collect from someone who has/had nothing in the first place -- then imagine this scenario every year from then on. I'll bet even IRS collections (as tough as they are) will throw in the towel on these things before the debtors do.

May be that is the reasoning behind not treating it as a loan. Why waste personnel on useless chases.

[FEDUKE404]

A "credit" just sounds better...

This entire credit has all the trappings of a paperwork nightmare, aside from the fact that most taxpayers just see $$$ signs and don't realize it is simply an interest-free loan that must eventually be repaid in full.

One would think the IRS will keep some record of who owes what. And I can just imagine the whines when someone sells their "new" house a couple of years down the road and then faces a lump-sum repay!

All kidding aside, this situation could raise some interesting situations for accountants adhering to due diligence requirements with their new clients, receiving interview responses along the lines of "I never knew THAT!"

FE

[John of PA]

Warning, don't ignore the 1st Time Homebuyer Credti

I agree this credit is not very good tax law, and I agree it really is not a credit. But be sure to at least discuss this with your client. Here's a scenario. You do a tax return and don't take the credit. Taxpayer goes to another accountant next year. The other accountant sais "your tax man last year missed this credit". Your angry X-client sais why did you not tell me about this, and wants you to do a free 1040 X amended. Malpractice? Maybe.

[RLymanC]

Homebuyer "Credit"

I've had 2 clients that qualified this year, after explaining the loan to them, they both declinerd.

If they could have used it as a down payment, yes, after close of escrow, no.

[Mike Mac]

Make a big principal payment

If I can talk my clients into using the $7,500 as one large principal payment on their home, I don't really know the difference between that and if the money was available to apply to the downpayment. The fact of the matter is that it was not available then but it is now. If they plug that $7,500 principal payment in to an amortization schedule they'd easily see the thousands of dollars of interest it would save them in the long run. As a money manager, I honestly don't see a big downside of an interest-free 15 year $7,500 loan for my clients. I am not sure where else you could get that much bang for your buck.

Mike Mac

[rgtaxservice]

Something to ponder

Taxpayer goes to another accountant next year. The other accountant sais "your tax man last year missed this credit". Your angry X-client sais why did you not tell me about this, and wants you to do a free 1040 X amended. Malpractice? Maybe.

I'm wondering if it might be a good idea to have a client sign off on declining the credit/loan. This signoff could also contain wording that any amendents regarding the credit will be billable. It's a CYA measure to prevent "You never told me.." discussions.

Sure, the 7500 loan doesn't sound good now...but given the economy, the client might change their mind down the road.

[Black Bart]

Well yeah, sure;

...I honestly don't see a big downside of an interest-free 15 year $7,500 loan for my clients. I am not sure where else you could get that much bang for your buck.

Mike Mac

I agree that it's just great for the clients, but for tax preparers (in addition to the taxpayers having to eat this giveaway) it's just another burden/weapon for IRS to put on us/threaten us with.

When thousands of people eventually begin ignoring/evading/not paying these back, who do you suppose Congress and IRS is going to look to for a scapegoat? Will it be the "abused poor people" in default or will it be those those low-down upper-class tax preparers who -- shockingly -- failed to exercise due diligence by explaining to deadbeats what's already been explained to them. I think we all know the politically expedient answer to that question. When Fannie Mae's chickens came home to roost, bankers learned that vote-hungry politicians felt it was everybody's fault except those in default.

[JohnH]

Bart: You nailed it. For my part, there's no way I'm going to prepare a return claiming this credit. I'll send them to HRB or JH - somebody with deep pockets in case something goes wrong. I don't plan on having this sort of thing hanging over my head for the next 15 years.