News about the First-Time Homebuyer's Credit

If you have been thinking about buying your first home, you may want to consider doing it by April of this year. The IRS is cutting off the first-time homebuyer's credit at the end of April 2010 and you could benefit from a deduction worth thousands of dollars if you choose a home before then.

According to a report on CNN money, the $8,000 credit is still available for first-time homebuyers if your contract to buy the home is dated by the end of April. After that, you have until June of this year to close on the house in order to be eligible for the tax credit. However, due to fraudulent use of the electronic filing system, you are no longer able to file your taxes electronically this year if you want to claim this credit.

In addition to losing the option to file electronically, first-time homebuyers wishing to claim the tax credit must also fill out extra paperwork, including a process which includes a mortgage statement, proof of residency and even a copy of your driver's license. In order to get the credit, you must fill out the required paperwork and send it in this year. You can find the new documents on the IRS website (www.irs.gov) which has recently been updated to offer the newly required paperwork.

If you qualify for the first-time homebuyer's credit and you want to take advantage of the current mortgage rates combined with the tax credit, don't delay on getting your paperwork filled out and sent in. It is going to take more processing time to get your $8,000 credit than it did before due to the fraudulent misuse of the electronic filing system. You can, however, still claim it on your taxes but you will be waiting longer for your return as a result of the increased processing time.

The expiration of the first-time homebuyer's credit is likely to create a rush in the next few months to buy a home. Since it was offered in January of last year, real estate experts have said the significant tax credit has helped revitalize the market to a certain extent. According to the IRS, nearly 1.5 million families have claimed this $8,000 credit in the last year. The National Association of Realtors also expects that at least 350,000 more homes could be sold as a result of the credit.

On the other hand, the tax credit may mean a slump in home sales in the future. First-time homebuyers who were planning to buy a home in a few years are now buying homes in time to take advantage of the credit. So while the short-term effects are clear, the credit may hurt long-term sales. In addition, since the tax credit can be used as a method of putting a down payment on a home in the FHA program, there could be a risk of increased foreclosures in the future as these first-time and inexperienced homeowners go into default.

It will be interesting to see what happens with the first-time homebuyer's tax credits. We'll continue to observe the results and report them as any changes occur.