FTHB Tax Credit Scam? (2009, lender, new home)

[chrjac72]

I wanted to take advantage of the $8,000 First Time Homebuyer tax credit available this year, but didn't have any money for a down payment. I read online that if you use a government agency for financing, they are now letting you use the tax credit for an FHA down payment. I contacted a lender from OHFA's website and was told that they could put me in a brand new home with only $500 earnest money out of my pocket. I signed a contract on a house and they sent me to a tax person to file an amended tax return. Keep in mind that I only have a contract and have not closed. The tax person completed the amended tax return and mailed it off. I later changed my mind about the house (felt like I was rushed and made a mistake) and they said "oh no problem, we'll put you in a different house." They say they'll just transfer the tax credit from the first house to the new one - no big deal. So, now I have a new contract on another house that I really love, but I feel like this whole thing is going to blow up in my face. First of all, won't the IRS want some kind of proof of the new home purchase and what will happen when the addresses don't match? I questioned them on this and they said what they are doing is "perfectly legal" and they "do this all the time." I am deathly afraid that I will give my current landlord notice, be set to move and then I won't get the $8,000 check to use as my down payment and I'll have no where to go. Any idea what I can do in this situation to give myself some peace of mind?

[wilson1010]

See the attached. Note FAQ 9, 21.


Federal Housing Tax Credit for First-Time Home Buyers: Frequently Asked Questions

[Didamc]

Originally Posted by chrjac72

They say they'll just transfer the tax credit from the first house to the new one - no big deal. So, now I have a new contract on another house that I really love, but I feel like this whole thing is going to blow up in my face. First of all, won't the IRS want some kind of proof of the new home purchase and what will happen when the addresses don't match? I questioned them on this and they said what they are doing is "perfectly legal" and they "do this all the time." I am deathly afraid that I will give my current landlord notice, be set to move and then I won't get the $8,000 check to use as my down payment and I'll have no where to go. Any idea what I can do in this situation to give myself some peace of mind?

The IRS does not require "proof" of the purchase of the home, at least not when claiming the credit. You may however receive a letter from the IRS requesting proof, but this would be completely random as part of their auditing that they do. They only thing you need to make sure happens so that it doesn't come back to you in a bad way, is amend your return so that it is CORRECT. Since you've already mailed off your 1040X, you will need to file a new 1040X and Form 5405 along with a letter explaining the change to the 5405 to correct the information with the IRS so that it would match in case of an audit. As long as your credit doesn't change from the changing of houses, then everything will equal out be just fine. Keep in mind that amended returns take 8-12 weeks of processing, so you're not going to see that money for that amount of time. Re-amending your return will not add additional time to that, as long as the first credit is approved.

I'm not really sure how the agency you are dealing with is getting this money any faster from the IRS, or if they just are "fronting" it for you until the IRS processes that return, but if you are concerned, you can contact the IRS directly and ask them about it (1-800-829-1040 M-F 10am-7pm). When calling, have your original filed 1040 and the Amended 1040X with you and write down the agent number they rattle off when they answer the phone (if you don't catch it, ask them to repeat it before you continue with them).

Congratulations on your new home and good luck with everything!

[Didamc]

Added note:: You are not allowed to claim the credit until after you purchase the house, so the day you close and the title/deed is in your name is the date you would put on the Form 5405. I'm not sure how the tax person knew this date or put it if the house was not purchased yet. This can all easily be cleared up with the IRS if a problem does arise, just use a good tax person. I am a tax accountant by the way, so if you have any questions, feel free to shoot me a direct message.