The Massachusetts Mortgage Broker

It is no secret that the First Time Home Buyer Tax Credit has been great at helping new buyers purchase a home (with great Massachusetts mortgage rates to boot!), but there are some little-known facts to claiming the First Time Home Buyer Tax Credit that have virtually been kept a secret.

Due to an influx of fraudulent tax credit refund claims, the Internal Revenue Service has been providing behind-the-scenes tax instructions to Certified Public Accountants and tax advisors on how to file for the extended First Time Home Buyer Tax Credit after November 6, 2009. And some of this guidance is catching Massachusetts first time home buyers unaware.

First, Massachusetts first time home buyers cannot file a 1040-EZ to claim the First Time Home Buyer Tax Credit nor can they file electronically. The IRS instituted this measure to halt fraudulent tax credit claims. As ridiculous as it may seem, the IRS never had a way to determine if someone purchasing a home was a first time home buyer or not and is in the process of creating auditing software to catch both previous and future tax filers who fraudulently try to claim the First Time Home Buyer Tax Credit.

Second, the IRS now requires that a signed copy of the HUD-1 Settlement Statement be attached to IRS Form 5405 which cannot be attached electronically (hence, no electronic filing allowed to claim the First Time Home Buyer Tax Credit).

Finally, the IRS is advising CPAs and tax advisors to expect an average 16-week turnaround time before their clients receive their tax refund. The IRS needs that time to audit the documents and may even issue a notice requesting further evidence to support their claim of the First Time Home Buyer Tax Credit. And yes, this new law allows the IRS to request further documentation for amended returns as well.

For some additional useful guidance from the IRS about the First Time Home Buyer Tax Credit, check out 10 Important Facts about the Extended First-Time Home Buyer Tax Credit and First Time Home Buyer Tax Credit.

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