New First Time Home Buyer Credit

[dyne]

It appears to me that this new first time home buyer credit is of little value, if any
since the money will not be received until after the tax return is filed so it cannot
be used for a down payment on the purchase of a house. Comments?

[Chief]

First Time Home Buyer Credit

like many of the subsidies will prove to be a headache for all preparers. For new clients now copies of previous returns are essential. How many tp will remember the payback each year of this credit? I suspect IRS is not too happy with this credit. I predict nothing but trouble will come of this credit.

[Uncle Sam]

Buyer Credit

It will definitely be a nightmare - just like accumulated depreciation schedules for new clients.

Just say a client qualifies for this new credit for 2007.
So long as the client goes back to the same preparer - the preparer would be able to track the accumulated payback.
But what will happen if say, 7 years from now, the client goes to another preparer. Even if the client shows the prior return to the new preparer - HOW is the new guy going to know how much has been paid back to know when to stop picking up the payback? Also - what about estate tax return preparers who will need to know to pay back the full amount in year of death?

[Burke]

What do you want to bet that this will be one of the things that goes away with future legislation? Tax preparers, UNITE! Let our representatives who write tax laws know how we feel about it. Our professional organizations who meet with legislative committees should be relaying these concerns to them. As well as Nina Olson, Taxpayer Advocate.

[Bees Knees]

Since it is a refundable credit, it will also inspire abuse similar to EIC fraud. People filing bogus returns, get their $7,500 refund, then vanish.

Meanwhile tax preparers will have to go through a new list of due diligence checklists to make sure our clients really deserve the credit.

The way to deal with this is NOT to complain about complex rules and preparer responsibilities. The way to deal with this is to RAISE OUR FEES!

The rules keep getting more complex.
Preparer penalties keep increasing.
Why in the world are we so afraid to raise our fees?

[Burke]

I agree with raising fees. But I also think we need to lobby for simpler tax laws.

[Burke]

But what will happen if say, 7 years from now, the client goes to another preparer. Even if the client shows the prior return to the new preparer - HOW is the new guy going to know how much has been paid back to know when to stop picking up the payback? Also - what about estate tax return preparers who will need to know to pay back the full amount in year of death?

This could be solved by requiring that the cumulative figure be put on the return somewhere each year so it is available to the preparer.

[dsi]

Credit? LOL This is a loan, and this is set to expire in 2009.

[Black Bart]

Chicken or egg?

It appears to me that this new first time home buyer credit is of little value, if any
since the money will not be received until after the tax return is filed so it cannot
be used for a down payment on the purchase of a house. Comments?

Can't get $7,500 'til the close and can't close 'til he gives the bank $7,500 (assuming a refund), so it looks like somebody's just gonna have to trust somebody.

Unless...taxpayers comes to the office, says he bought a first-time house, claims the credit, files return, gets refund and then goes and buys the house. How would we know if he had or had not bought a house before we file him? Which brings up the question -- what kind of proof (if any) are we going to ask for or be required to ask for? A closing statement? His word? What??????

[JohnH]

Good question.

Maybe there will be a form supplied at closing similar to the Certificate they used to get for the Mortgage Credit. Without some sort of verfiied government form, I'll be looking for lots of documentaiton before I'll fill out a return claiming this credit for a new client. Probably a closing statement, amortization schedule, and some sort of proof that they were not a homeowner for the required pre-purchase period. (Rental contract, sworn statement from Mom & Dad if they lived at home, etc?)

Whatever the case, I'm sure the fee for doing one of these will be very high - maybe so high they will choose to go to HRB or JH...

[David1980]

For those who were going to buy a house anyway it's a good deal. Interest free loan and since you were going to buy a house anyway you already had the down payment set aside.

For everyone else it's pretty pointless. Though I would agree this thing is going to be abused like mad.

And 2010 I anticipate lots of taxpayer inquiries as to why they got $500 less than they were supposed to get.

[Gene V]

IR-2008-106, Sept. 16, 2008

Some exceptions that applies to the repayment rule. They include:

· If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount
.
· If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.

· If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.

· If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.

[Snaggletooth]

Mortgage Company Gets It

I've voiced this before, in most cases the taxpayer will not ever see the money.

Obviously, the mortgage company is going to insist that $7500 be a down-payment, and they're not going to let the borrower have the money first. They will have to get into the tax preparation business and get the $7500 similar to a RAL (only with a more extensive screening process).

Another option is to modify the 1098, or have the IRS create another document which does the following:

1) Gives details to substantiate that a loan was, in fact, made.
2) Provides the clearinghouse transit number of the mortgage company
so that a $7500 portion of the refund can be sent to their account when
we e-file the return.
3) Has a box indicating whether the $500 was withheld in future years.

Be interesting to see how this works out. The idea that the borrower gets the money first and then be relied upon to faithfully remit to the lender is absolutely ludicrous. But we've seen ludicrous before...

[DonPriebe]

Time is money is time

Obviously, the mortgage company is going to insist that $7500 be a down-payment, and they're not going to let the borrower have the money first. They will have to get into the tax preparation business and get the $7500 similar to a RAL (only with a more extensive screening process).

The main difference here is the time frame. In a conventional RAL the bank gets its money back in two weeks. A home buyer RAL would require the bank (or mortgage company) to loan the down payment and then wait months until the filing season opens before any possible repayment. Then of course the loan risk transfers to Uncle Sam who waits another 15 years for full repayment.

[dyne]

First Time Home Buyer Credit

I telephoned seven home mortgage companies to ask if the $7500 credit or refund could
in ANY way be used to leverage the loan or otherwise help provide funds for the
down payment. They all replied: NO! Of course the money could be used to purchase
furniture, to pay the first few mortgage payments, etc. I read that the purpose of this
new law is to encourage people to buy a home. But it does NOT help provide funds
for use as the down payment as the funds are only available after the federal tax return is filed.
So why will it encourage people to buy a home? A CPA friend of mine says this
new law is simply "smoke and mirrors". I agree.