TAX NEWS - June 2010

IRS Tax: Man gets homebuyer's tax credit for home not purchased

Michael Fischer was surprised when he got the first-time homebuyer tax credit in the mail, because he never bought a home.

The check, in the amount of $8,135.26 for the credit plus interest, was voided and returned to the local IRS branch.

The tax credit was introduced in 2008 and was extended for another year in 2009.

On returns processed through Feb. 20, nearly 1.8 million taxpayers nationwide claimed $12.7 billion in these credits, according to IRS spokeswoman Carrie Resch.

In North Dakota, 3,525 taxpayers claimed $24.1 million, she said.

Fischer had looked into purchasing a condominium in Bismarck.

He said he had signed a binding agreement that was contingent upon the approval of Fischer's lawyer.

Fischer's lawyer cautioned him against going through with the agreement, Fischer said, but not before Fischer had amended his 2008 tax returns to apply for the first-time homebuyer tax credit.

The Internal Revenue Service cannot comment on an individual's taxes, but Resch said the credit is not supposed to be filed  until the sale is closed.

Fischer said in an agreement with the seller he was to use the tax credit as part of his down payment. He would have been able to move in while they waited for the credit to be approved.

While an individual cannot use the credit as part of a traditional down payment because the sale must be closed before receiving it, sellers can agree to a smaller down payment and then another payment toward the principle to be made with the credit at a later date, the managing director of public affairs for the National Association of Realtors, Lucien Salvant, said.

Century21, who was involved in the transaction, would not comment and would not contact the seller to see if this was the case.

"But then I walked away from (the sale), and I assumed, well, the IRS isn't going to be able to confirm that I've purchased the property," Fischer said.

What makes the situation strange for those in the real estate business is that Fischer received the check.

There's been more issues with individuals not getting the credit, Salvant said.

A couple of months ago, he said, there was a "log jam of trying to get the credit" but those that applied did end up getting them.

Fischer said his biggest concern was how many of these tax credits are being issued when they shouldn't be.

"If this type of thing is happening frequently, where the IRS is just sending out $8,100 without verifying purchase of property, that's a pretty big waste," he said.

The IRS has three years and sometimes longer to review individual tax returns, according to its website.

Eligibility for various credits and deductions claimed on a tax return are a routine part of a tax audit, the IRS said.

Homes purchased after April 30 are not eligible for the first-time homebuyer tax credit.  Only homes that have entered into binding contracts before that date and then close before June 30 can still claim the credit.