Longtime homeowner tax credit documentation

Nine short days to the federal tax filing deadline on April 18th, 2011.  This year, Uncle Sam has a $6,500 tax credit in store for those of us who bought a new home during the first part of 2010 after having lived in another home for a while.  The instructions to Form 5405 call a person who fits this description a “long-time resident of the same main home.”

The main criteria are these:

1. You (and your spouse if married) previously owned and used the same main home as your main home for any 5-consecutive-year period during the 8-year period ending on the date you purchased your new main home.
2. You purchased your new main home located in the United States (a) after December 31, 2009, and before May 1, 2010, or (b) After April 30, 2010, and before October 1, 2010, and you entered into a binding contract before May 1, 2010, to purchase the home before July 1, 2010.
3. You aren't disqualified from claiming the credit for a number of reasons outlined on page 2 of the instructions — mainly revolving around how much expensive the home is, how much you make, and whether you bought it from someone who has a business or family relationship with you.

This is all well and good for us, because we passed this test, and can claim the $6,500 credit.  However, darn it if we don't actually have to prove and substantiate the claim that we meet the criteria.  I guess the government isn't up for handing out $6,500 credits to anyone who “claims” to have been a “long-time homeowner” and a “new homebuyer,” wink-wink nudge-nudge.  Ah well. 😉

Here are the requirements for substantiating the credit on your tax return — which has to be physically mailed in, by the way:

• Proof of purchase within the appropriate window. This amount to providing a copy of the properly-executed HUD-1 Settlement Statement.  This shows the date of purchase, the address, the purchase price, and a whole bunch of other stuff related to the various closing costs and the financing obtained.  The IRS instructions recommend signing the form even if there's no place for a signature on it.
• Proof of previous long-time residency. These papers I had to hunt for a bit.  What needs to be demonstrated is residency for five consecutive years within the eight years prior to the purchase of the new home.  The forms that can be accepted as proof are one of the following: (a) Form 1098 from your lender(s), which are the forms that the lender sends to the IRS (and you) detailing how much mortgage interest you paid for the year; (b) property tax records, which you would have had you been the owner; (c) homeowner's insurance records.

I could lay my hands on the 1098s the easiest of the three.  I'll still need to verify signature requirements for the HUD-1 because mine doesn't have the sellers' signatures on it.

But, you know, for $6,500, it's worth the effort. 🙂