Update on First Time Homebuyer Credit and Tax Refunds

Update on First Time Homebuyer Credit and Tax Refunds

WASHINGTON, D.C. – March 23, 2011 – (RealEstateRama) — The IRS today released information on processing issues that are impacting a small percentage of tax returns involving repayment of the First Time Homebuyer Credit (FTHB), primarily involving 2008 home purchases. While most of these returns are processing normally, the IRS recognizes the hardship caused by delayed refunds, and it has assigned additional staff and resources to address the issues promptly.

It is important to note that taxpayer returns claiming a home purchase in 2010 are not affected, and those returns are being processed as are the vast majority of other homebuyer returns.

Here’s an update on the source of the processing issues:

1. Married Filing Joint taxpayers who received the FTHB credit on a 2008 purchase

We have identified a processing issue primarily impacting refunds for married couples filing joint returns this year who received the First Time Homebuyer credit on their 2008 tax return. This credit was an interest-free loan, and must be paid back beginning this year under the provisions of the law.

This issue, related to Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, primarily impacts Married Filing Jointly taxpayers who filed their tax returns this year before Feb. 22. The IRS is working aggressively to manually process tax returns for this group of taxpayers. It expects most, if not all, of these refunds to be available by April 5, and others the following week.(The date assumes that there are no other issues with their return, and that their refunds are not subject to any offsets for unpaid federal taxes or other debts.)

2. Taxpayers who received the FTHB credit and are now reporting the sale or disposition of their home
3.  Taxpayers who received the FTHB credit and are attempting to pay back more than the amount required (typically $500)

These two issues require changes to IRS’ core tax processing systems.  We are actively working on the development and testing of the required changes that will allow us to process these impacted tax returns and issue refunds. The IRS does not currently have a definitive date for when these changes will be complete, although it will be in April.  We will update this web page as soon as we have a more specific date range.

What should taxpayers do?

We appreciate that taxpayers affected by this issue are anxious to get the status of their refund.  For those who have already filed, no action is necessary. They can check “Where’s My Refund” at www.IRS.gov for updates. Because the IRS is already aware of this issue and is taking corrective action, there is no need to call.

For those who have not yet filed and are making a repayment of a First Time Homebuyer Credit this year, there is a simple step taxpayers can take to help speed processing. Couples filing a joint return for tax year 2010 who received the credit on their jointly filed 2008 tax return should file two 5405 forms, one for each taxpayer. For couples filing a joint return for 2010 but who had a different filing status in 2008 and only one spouse received the credit, the IRS recommends filing one Form 5405 for the taxpayer who received the credit. For full details, see the March 18 Quick Alert.

Can other factors impact refunds besides the First Time Homebuyer Credit?

Yes, the time frames above assume there are no other issues impacting the taxpayer refund, including federally mandated offsets to refunds. More information is available on www.IRS.gov.

Other information
For other information on the 2011 tax filing season, including statistics on filings and refunds, please see 2011 and Prior Year Filing Season Statistics.

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