If you’re confused about the First Time Homebuyers’ Tax Credit, you’re not alone. Months after it was enacted, this tax credit is still causing taxpayers trouble. It’s not just the long delays—not just the constantly changing rules—not just the extra work on top of the already complex process of buying a new home. No, the big problem with the first time home buyer’s credit is all the new forms you have to deal with.
Here’s a quick list of the more common ones: where you get them, what you do with them, and what to watch out for.
CP 21B Form
The CP21B is a form for handling the overpayment of taxes. If you already filed a tax return, and you amend it to include new deductions (like the first time home buyer’s credit), you’ll probably end up getting one of these. The good news is that, in theory at least, the IRS will give you your money in 30 days. They say you don’t need to do anything at this point.
But be careful. The CP 21B might get to you after your taxes get amended in a way that makes the money unavailable again. For example, you might be due a refund because you purchased a new home—but then find out that the IRS has decided you weren’t a first-time homebuyer after all. If you’re at all unsure, call the IRS before you start planning to spend the money (they give you a number on the form). It’s a small inconvenience that could save you big trouble later on.
If you’ve purchased a home before, the HUD1 form might be familiar. This form summarizes all the costs and charges of buying a new home. You can view a copy of the HUD-1 form to see exactly how it works, but it’s basically a long list of small charges.
Since the value of the home determines the amount of the new home tax credit, a HUD-1 form is the simplest way to document how much of a credit you should get. So when you apply for the credit, you’ll need to have this form filled out and sent in.
A deed simply records who owns a particular home or piece of property. While it shouldn’t be strictly necessary (since the HUD-1 form also shows who bought and sold the property), the deed is redundant. More information is better, though, so sending in a copy of your deed is a good way to ensure that what you get back from the IRS is a refund, not a request for more information.
1040, 1040A, 1040EZ, or 1040X forms
You’ve probably filed a 1040 of one kind or another already. If you’re collecting the first-time buyer’s tax credit, you may need to amend it. This is one of those processes that’s best done automatically with tax preparation websites or software—there’s a lot of simple math and double-checking that you may end up needing to do, and don’t want to get wrong.
Form 5405: The First-Time Home Buyer Credit form
This is the form you can use to apply for the First Time Home Buyer’s Credit. It’s fairly straightforward—most of the information on this form will come from the other documents you’re using—but it’s absolutely critical to double- and triple-check the 5405 form to make sure it’s entirely accurate.
The good news for you is that everyone’s on your side: your realtor wants you to get the payment, because it lets you spend more money on a house; the government wants you to get the money because it’s being spent in order to raise home prices; and the company or individual who helps you with your taxes has every reason in the world to want you to get this extra cash.