What You Need to Know About the First Time Home Buyer Tax Credit

If you’ve been shopping mortgage rates or recently purchased a new home, you have probably heard about the first time home buyer tax credit. It was planned to expire November 30, 2009 but was extended to April 2010. Whether or not you claimed this credit, there are some important facts you may need to know.

Did I Qualify for the Home Buyer Tax Credit?

Even if you have purchased a home in the past, you should know that this tax law considers first time home buyers to be anyone who has not lived in their own home for the previous three years. Additionally, this extension did not only affect those purchasing new homes — anyone who upgraded to a larger home before the April cut-off was also eligible to receive a tax credit.

The credits total $8,000 for new home buyers, while homeowners who purchased a larger space were eligible for a credit up to $6,500. These credits are subject to income limits, however. J. Money of BudgetsAreSexy.com breaks down the numbers further in his article pertaining to new tax laws.

IRS Late with Home Buyer Credits

Those who were eligible could not e-file because doing so would delay refunds. Due to additional paperwork requirements meant to reduce fraud, anyone who originally planned to file taxes electronically had to instead mail in their taxes.

Also, early filers did not receive their credit as soon as expected. The IRS didn’t begin processing first time home buyer tax credit claims for tax year 2009 until mid-February of this year. January filers did not receive refunds for several weeks and according to CNNMoney.com, the IRS advised some taxpayers they may not receive a credit for four months.

Excitement Over Home Buyer Credit Sparks Fraud

There were plenty of fraudulent claims for the first time home buyer tax credit, including over a thousand prisoners who claimed $9.1 million in credits, even though they were in prison during the time they supposedly purchased homes.

Shockingly, even IRS employees were guilty of fraudulent claims. At least 34 IRS employees filed for the credit, even though it was proven that they already owned property and were not considered first time buyers (Forbes.com).

What if I Qualified for the Home Buyer Credit but Didn’t Claim It?

You may have needed to sign the dotted line by this last April, but the credit applies as long as the sale closes by June 30, 2010, as reported by Jenifer B. McKim of Boston.com.

However, there is a push to extend the deadline a bit further. Senate approval is pending to extend the close date on a home to September 30, in order to qualify for the credit. SavingToInvest.com reports the rush of buyers in the past several months has created too large of a backlog for realtors.

If you didn’t complete a Form 5405 along with your 2009 taxes, however, sorry — it’s too late.

You may not have missed much, though. According to RISMedia.com, buyers who neglected to claim the credit may actually save more money on a new home purchase anyway. Apparently, now that the credit has expired, buyers on the market for a new home are harder to find and sellers are dropping prices to boost home sales again. Interest rates have also dropped to the level that buyers may save well over $8,000 over the entire term of the loan.

If you still wish you had a chance to save thousands on a new home purchase, there may still be hope. CashMoneyLife writes that “active members of the Armed Forces and certain federal employees who are currently working outside of the US”  have until April 2011 to claim the credit.