Avoiding first-time homebuyer tax credit traps

By Aaron Gilchrist - bio | email

RICHMOND, VA (WWBT) - We introduced you to two couples who claimed they were misled by a local builder about how they could get and use the first-time homebuyer's tax credit.

The IRS now says they were not entitled to that money and will have to pay it back.

The mortgage broker has released both couples from their contracts and offered them $2,500. They still must repay the IRS.

So how can you avoid falling into the same trap?

Taxes and buying a house are complicated things.  That's why there are tax professionals and mortgage professionals to help us, but each should only be doing the job he's trained to do.

The government says the $8,000 tax credit for first-time homebuyers was used in more than 1.4 million home sales in the past year.  Good news for businesses and good news for buyers.

But the government also says more than 19,000 taxpayers claimed the credit, but hadn't purchased a home... including Tracy and Edward Hayes.

"To advise us to amend our taxes with an address that they said was our future home, " says Tracy, "we should have never been advised to do that but we trusted them."

They signed a Ryan Homes contract and say they were told to file for the free money, payoff debts, clean up their credit, and use the rest for the down payment.

"A mortgage professional, if he's really doing his or her job, will definitely not give you tax advice," says Citizen's Residential Mortgage vice president Ron Waddell.  He says homebuyers, especially first-time homebuyers, should only get mortgage advice from mortgage advisors.

But with a federal program that spends a billion dollars a month, some professionals might be tempted to far overstep their bounds.

"Ideally what benefits the borrower, the consumer, will generate more business for the mortgage industry, realtors," adds Waddell.

For tax advice, he says, turn to your tax professional or the IRS directly.

"I think it's clear that the tax credit is only for individuals that have actually purchased and closed on a home transaction" Waddell tells us.

And a quick check of the IRS website makes it crystal clear.

There's a long list of frequently asked questions about the tax credit and it plainly says you can't get the credit before you actually have the house.

Right now, Congress is looking at extending the tax credit program past its November 30 end date into next April.

If you have questions about the credit, here's a link to the IRS website http://www.irs.gov/newsroom/article/0,,id=204671,00.html?portlet=7.

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