First Time Buyer-Proof Requirements?

[zeros]

I didn't think I would have to fill out a form 5405 for the first time buyer but had an inquiry tonight. The form seems simple enough but what kind of proof does the preparer have to have from the client to know if this is legitimate? Closing papers?

[Koss]

Closing Statement

The settlement statement, sometimes referred to as the HUD-1 form, should be sufficient.

Technically, you really need to see that form, because the credit is 10% of the adjusted basis of the house. That means that from a theoretical perspective, knowing the raw purchase price isn't enough. You need to know the amount of certain closing costs in order to properly calculate the amount of the credit.

In practice, it won't usually matter. For example, if the purchase price was $144,000, adding the closing costs won't make a difference, because the credit maxes out at $7500 or $8000.

But I actually worked on a return this year where the purchase price of the house was under $70,000. Adding the appropriate closing costs to the basis actually made a difference in the amount of the credit.

Apart from asking the client, I don't think you're expected to verify whether they owned a principal home within the last three years.

How exactly does one prove that they didn't own something, anyway?



BMK

[erchess]

Burton

Don't ask questions like that or the IRS may start requiring us to get and keep things like rent receipts or affidavits from whoever has provided their shelter over the requisite period.

[AZ-Tax]

Can't the IRS check to see if TP filed any 1099-S's forms

in last 3, 5 or 7 years? To me this is where the IRS could make some bucks. A couple years down the road the IRS finds out the TP sold a home in 2006 via form 1099-S. Goes back disallows new home purchase credit plus nails TP for interest. Saves us other TP's quite a bit of money.

[WhiteOleander]

I think that if you sign a stmt at closing when you sell your house that it is your principal residence, that the title company doesn't have to file the 1099S. So, the IRS would not know via a 1099S if you had sold a home in the previous 3 years or not.

This credit is not well written or planned.

[AZ-Tax]

But doesn't the TP's SS# appear some where on docs

pertaining to buying a house. Yes, the loan docs. Form 1098, etc. If there is a will, there is a way.

[zeros]

Fraud Expected?

This seems a rather simple way of getting some quick cash. Do they expect a lot of fraud to do with this credit?

[jimmcg]

This seems a rather simple way of getting some quick cash. Do they expect a lot of fraud to do with this credit?

You think the earned income credit was the gateway to fraudulent income tax returns, just wait, you haven't seen anything yet! The Service is not prepared to cross reference this credit to anything. It is a potential cash cow for those so inclined.

[RitaB]

Burning Questions

I think that if you sign a stmt at closing when you sell your house that it is your principal residence, that the title company doesn't have to file the 1099S. So, the IRS would not know via a 1099S if you had sold a home in the previous 3 years or not.

I have often wondered how many people tell their title company a lie not to get that 1099S. I do not understand why everybody doesn't get the 1099S.

Also, I have never understood that whole thing about not reporting anything to IRS if you qualify for the exclusion. I tell my clients we're gonna report it and take the exclusion.

AND, why is IRS not sending letters to people who got 1099S anyway, even though they qualified for exclusion? I have seen that happen with new clients. There's the 1099S in the prior year stuff, but nothing on the return explaining it. I hope the letter is coming, cause this seems like a really easy way to avoid taxes to me.

Honor system does not work all the time. IRS should know that by now.

[David1980]

I would be tempted to do a 100% audit on the FTHBC if I was the IRS. An $8,000 credit ... I mean people are already talking about this, just wait til the first batch gets their big checks and tells all their friends.

Minimum wage employees are going to whisper to one another "Hey, just lie about buying a home, they can't prove you didn't!" and the prospect of $8,000 free money is worth the risk for a lot of people making $15,000 per a year.

I think next year the fraud will be significantly more than this year.

[Nashville]

Accountability

I have often wondered how many people tell their title company a lie not to get that 1099S. I do not understand why everybody doesn't get the 1099S.

I think in many cases, attorneys who handle the closing are supposed to issue the 1099S. That may explain why the issuing thereof is so inconsistent. And in 95% of the cases, it is known whether a dwelling is someone's personal residence or not.

I agree there should be a 1099S for every real estate sale, and the sale should be reported by the seller, even if not taxable. In the "old days" taxpayers would have to file the old form 2119 whether they had to pay or not. It just adds accountability, and would simplify this nebulous 1099S requirement that attorneys and title companies can pretend they don't have specific knowledge. Just issue it - no exceptions. Then no one has to pretend anymore.

[Davc]

I've had clients who receive the 121 questionnaire from the title co with the answers checked and sign here stickies at the bottom. These are usually from a sale of property in CA by clients who've been OR residents for several years.