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Mortgage News Daily combines the expertise of some of the housing industry's leading minds with the power of social media to offer an always lively, constantly evolving web community. MND communicates breaking news, streams video, and provides expert opinion and commentary to a community of interested market professionals and curious consumers. Treasury Identifies Confusion in IRS Handling of Homebuyer Tax Credits
The Treasury Inspector General
for Tax Administration (TIGTA) has completed a study of IRS management of the
evolving series of tax credits that were offered to homebuyers over that last two years and found that the IRS needs to "improve its capabilities to identify taxpayers who must repay tax credits for homes they purchased under the First-Time Homebuyer Credit program"
The findings also provide an unpleasant surprise for a few people
who took advantage of the credit, but good news to many more. In the first
case, some homebuyers received what they thought was a gift of up to $8,000
which was actually a loan. In the
second instance, homebuyers will not have to pay back money as they thought
they would.
In 2008 the Housing and Economic
Recovery Act, the first attempt to stave off a looming housing crisis, contained
a "tax credit" for first time homebuyers - or at least those who had
not owned a home during the previous three years - of 10% of the purchase price
up to a cap of $7,500 if they purchased a home between April 8, 2008 and July
1, 2009. This was an interest-free loan
that would be recaptured through a slight increase in the homebuyer's taxes during
each of 15 years, starting the second year after the house purchase. The idea behind the credit was to defer a bit
of the cost of purchasing a home into the future when, hopefully, the economy could help pay it back.
With the housing market still in
extremis, Congress passed another bill, the American Recovery and Reinvestment
Act of 2009, which also included another homebuyer tax credit, this time an outright cash rebate
of ten percent of the purchase price with an $8,000 cap. The effective dates for
purchases were originally set for January 1, 2009 through November 30, thus
overlapping the first tax credit authorization.
A third bill, the Worker, Homeownership and Business Assistance Act of
2009 extended dates of the $8,000 credit into 2010 and added a smaller credit
for repeat buyers. That legislation does
not appear to, as yet, be part of the problem.
All three of the bills
contained nearly identical provisions for recapturing the credit if the house
were sold within three years and for waiving the recapture if the owner were to
die or sell the home without a gain.
The TIGTA study identified the potential for
confusion between the interest free loan in 2008 and the 10 percent tax credit in 2009 when an audit
noted that taxpayer accounts were not properly coded to indicate that they
purchased their homes during 2009. In some instances, the IRS did not
accurately distinguish between individuals with a 2008 home purchase and those
who purchased in 2009.
73,119 (4.1
percent) of those receiving the tax credit had incorrect purchase dates shown on
the IRS computer system. Of
those, 59,802 had purchased their homes in 2009 and the IRS either
incorrectly recorded the purchase date as 2008 or did not record the date at
all. 9,122 of these taxpayers incorrectly
received their credits in the form of a tax refund while 59,802 individuals were
notified that the tax credit portion of their refund was subject to repayment.
The report also found that $10.1 million in Homebuyer Credits were claimed
by 1,326 taxpayers who were identified as deceased by the Social Security
Administration, about a third of whom had actually died more than a year before
they allegedly purchased a home. The IRS did not allow 528 of those individuals
to receive over $4 million they had claimed.
The report recommends that the Commissioner of
the IRS Wage and Investment Division correct the purchase dates for the accounts
with incorrect purchase dates. TIGTA also found that the IRS does not currently
have the ability to identify individuals who received a credit and later ceased
using the home as their primary residence, which would accelerate recapture
requirements. The IRS said it would use
third-party property records to verify home purchase or disposition and will
refer discrepancies for appropriate resolution.
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This email was sent to you by:
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Mortgage News Daily
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Anonymous Anonymous |
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Message:
YOUR MESSAGE HERE
Treasury Identifies Confusion in IRS Handling of Homebuyer Tax Credits
The Treasury Inspector General
for Tax Administration (TIGTA) has completed a study of IRS management of the
evolving series of tax credits that were offered to homebuyers over that last two years and found that the IRS needs to "improve its capabilities to identify taxpayers who must repay tax credits for homes they purchased under the First-Time Homebuyer Credit program"
The findings also provide an unpleasant surprise for a few people
who took advantage of the credit, but good news to many more. In the first
case, some homebuyers received what they thought was a gift of up to $8,000
which was actually a loan. In the
second instance, homebuyers will not have to pay back money as they thought
they would.
In 2008 the Housing and Economic
Recovery Act, the first attempt to stave off a looming housing crisis, contained
a "tax credit" for first time homebuyers - or at least those who had
not owned a home during the previous three years - of 10% of the purchase price
up to a cap of $7,500 if they purchased a home between April 8, 2008 and July
1, 2009. This was an interest-free loan
that would be recaptured through a slight increase in the homebuyer's taxes during
each of 15 years, starting the second year after the house purchase. The idea behind the credit was to defer a bit
of the cost of purchasing a home into the future when, hopefully, the economy could help pay it back.
With the housing market still in
extremis, Congress passed another bill, the American Recovery and Reinvestment
Act of 2009, which also included another homebuyer tax credit, this time an outright cash rebate
of ten percent of the purchase price with an $8,000 cap. The effective dates for
purchases were originally set for January 1, 2009 through November 30, thus
overlapping the first tax credit authorization.
A third bill, the Worker, Homeownership and Business Assistance Act of
2009 extended dates of the $8,000 credit into 2010 and added a smaller credit
for repeat buyers. That legislation does
not appear to, as yet, be part of the problem.
All three of the bills
contained nearly identical provisions for recapturing the credit if the house
were sold within three years and for waiving the recapture if the owner were to
die or sell the home without a gain.
The TIGTA study identified the potential for
confusion between the interest free loan in 2008 and the 10 percent tax credit in 2009 when an audit
noted that taxpayer accounts were not properly coded to indicate that they
purchased their homes during 2009. In some instances, the IRS did not
accurately distinguish between individuals with a 2008 home purchase and those
who purchased in 2009.
73,119 (4.1
percent) of those receiving the tax credit had incorrect purchase dates shown on
the IRS computer system. Of
those, 59,802 had purchased their homes in 2009 and the IRS either
incorrectly recorded the purchase date as 2008 or did not record the date at
all. 9,122 of these taxpayers incorrectly
received their credits in the form of a tax refund while 59,802 individuals were
notified that the tax credit portion of their refund was subject to repayment.
The report also found that $10.1 million in Homebuyer Credits were claimed
by 1,326 taxpayers who were identified as deceased by the Social Security
Administration, about a third of whom had actually died more than a year before
they allegedly purchased a home. The IRS did not allow 528 of those individuals
to receive over $4 million they had claimed.
The report recommends that the Commissioner of
the IRS Wage and Investment Division correct the purchase dates for the accounts
with incorrect purchase dates. TIGTA also found that the IRS does not currently
have the ability to identify individuals who received a credit and later ceased
using the home as their primary residence, which would accelerate recapture
requirements. The IRS said it would use
third-party property records to verify home purchase or disposition and will
refer discrepancies for appropriate resolution.
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