heads up on first-time homebuyers credit

had a client come in wanting to amend her '08 return and claim the first-time homebuyer's credit in advance of purchasing her first home.

I told her that this was not allowed; however, her lender faxed over an FHA letter explaining how "advances" on the credit were to be handled. The lender also stated that she was aware of others who had gotten the credit in advance of the purchase.

I called the IRS and the agent I spoke with said yes, it was allowed. However, I have ceased to believe anything I'm told on the phone by the frontline folks there. I told the client that I would have to do further research.

A fellow EA kindly provided me with this reference:

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6293,00.html It specifically addresses this issue with "No. You may not claim the credit in anticipation of a purchase..."

There is a small loophole--if you have "finalized" the purchase you can claim the credit. Perhaps on an FHA loan that is possible before closing? Anyway, our software does not allow a future date to be entered on Form 5405 and now I see why.

The "success" stories are obviously going to breed imitators, along with IRS employees who give out answers like the one I got today.

Reply to
Brew1
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The FHA announced a plan to provide short-term loans equal to the tax credit in advance of the purchase. Entities that can offer "tax credit advances" (HUD's words, not mine) with second liens are federal, state, and local governmental agencies and nonprofit instrumentalities of government and FHA-approved nonprofits.

It is a loan!

Go to

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and select letter number 09-15. (It's an MS Word doc.)

Reply to
Alan

I read something in the last week or two about how specialized refund anticipation loans (RAL's) might be allowed against the credit. I don't think it affects the actual filing of the tax return (no new form or box to check), and IIRC not all the details have been worked out regarding repayment, liens on the property, and so on.

The following URL is too long, I know, but I'm sure folks here can find it on there own if this doesn't work. It doesn't go into detail but gives you something else to continue searching for.

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-Mark Bole

Reply to
Mark Bole

Thanks, Mark and Alan--that clarifies the issue for me; however, I think there is going to be a lot of confusion.

I don't have the HUD letter in front of me, but there was a requirement that the borrower show proof that they had applied for the credit. It seems hard to swallow that HUD did not confer with the IRS on how a home buyer would get the egg before the chicken.

Reply to
brew.one

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