As a result of so many fraudulent returns being submitted, the IRS has cracked down and is now requiring the following be attached to any return claiming the first-time homebuyer credit:
- Form 5405
- A copy of the settlement statement showing all parties names and signatures, the property address, the contract sales price and the date of purchase. In most cases, your settlement statement is your properly executed HUD-1. If you are claiming the credit for a newly constructed home and you do not have an executed settlement statement, attach a copy of your certificate of occupancy showing your name, the property address and the date of the certificate.
- Copies of either 1098 mortgage statements, real estate tax bills or homeowner's insurance bills for the past 5 years - if you are claiming the credit as a long-time homeowner.
Because electronic filing software is not equipped to submit the necessary documentation, anyone claiming the credit will be required to submit a paper return. The IRS is notoriously slow at processing paper returns so taxpayers submitting them should expect a three to four month processing time. You can and should still include your bank information on a paper return so your refund can be directly deposited. If you request a check, you should expect an even longer delay.
If you are purchasing a home in 2010 that will qualify for the credit, you should look at reducing your withholding right after closing so you can get your tax savings throughout the year instead of having to wait until next April - or later!
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