Monday, June 28, 2010

Home buyers must scramble to claim federal tax credit

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Home buyers hoping to cash in on the federal tax credit have until Wednesday to close escrow.

To qualify, buyers had to buy or enter a binding contract to buy a primary residence on or before April 30 and close on or before June 30. The credit is up to $8,000 for first-time buyers and $6,500 for repeat buyers. Other restrictions apply.

The National Association of Realtors predicts that as many as 180,000 buyers who entered contracts by April 30 could miss the closing deadline. Most are involved in short sales, in which a home is sold for less than the outstanding debt. These transactions involve more parties and paperwork than regular sales and take longer to process.

A federal bill would have extended the closing deadline until Sept. 30, but only for people who had a contract pending on April 30. That bill, which included a host of other tax and spending measures including extended unemployment benefits, failed several test votes in the Senate and is now in limbo.

Despite efforts to crack down on fraud in this program, the Treasury Inspector General for Tax Administration issued a report this month showing that 1,295 prisoners got the credit on their 2008 tax returns, including 241 prisoners serving life sentences. The report also estimated that 2,555 taxpayers received inappropriate home buyer credits totaling $17.6 million for home purchases made before the allowed dates.

Meanwhile, time is also running out to claim California's tax credit for first-time home buyers. In March, the Legislature approved $100 million in state-income-tax credits for first-time home buyers who purchase a new or existing home in California. To qualify, the buyer must close escrow after May 1 and before the $100 million runs out. As of last Tuesday, the state Franchise Tax Board had received applications for $91.4 million in credits, after adjusting for credits that will go unused because some home buyers won't owe enough tax to take full advantage of the credit.

The board, which has been posting weekly updates on its Web site, will announce the cutoff date at least 24 hours in advance so people can fax their documentation. The credit will be allocated on a first-come, first-served basis, according to the time and date stamp on the fax.

California is also offering a state-tax credit worth up to $10,000 spread over three years to repeat buyers who purchase a brand new (but not an existing) home. This program also has $100 million in credits available, but as of last week, only $41.7 million in these credits had been claimed or reserved.

Posted By: Kathleen Pender (Email) | Jun 28 at 10:50 AM

Listed Under: Taxes