Do I need to complete a form or application? Are there documentation requirements?

You claim the tax credit on your federal income tax return. Specifically, home buyers should complete IRS Form 5405 to determine their tax credit amount, and then claim this amount on line 67 of the 1040 income tax form for 2009 returns. Home buyers must attach a copy of their HUD-1 settlement form (closing statement) to Form 5405 as proof of the completed home purchase.  If you are unable to provide the settlement statement, an executed retail sales contract with the same information as a settlement statement or a certificate of occupancy in the case of new home construction is sufficient. 

To qualify for the Move-up/ Repeat Buyer, you must verify you have lived in your old home for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS recommends attaching, in addition to the documents described above, any of the following documentation of the five-consecutive-year period:

• Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
• Property tax records or 
• Homeowner’s insurance records.

Note that taxpayers who claim the credit on their 2009 tax return must file a paper return because of the documentation requirements.

Is a tax credit the same as a tax deduction?

No. A tax credit is a dollar-for-dollar reduction in what the taxpayer owes. That means that a taxpayer who owes $6,500 in income taxes and who receives a $6,500 tax credit would owe nothing to the IRS. A tax deduction is subtracted from the amount of income that is taxed. Using the same example, assume the taxpayer is in the 15 percent tax bracket and owes $6,500 in income taxes. If the taxpayer receives a $6,500 deduction, the taxpayer’s tax liability would be reduced by $975 (15 percent of $6,500), or lowered from $6,500 to $5,525.

To download IRS Form 5405, visit www.irs.gov/pub/irs-pdf/f5405.pdf.  If you need help determining your tax credit amount, a tax advisor can help you complete the form.  Or, if you have not yet purchased a home, but still want to take advantage of the Home Buyer Tax Credit, contact one of our Home Loan Specialist at 1-888-562-6200 or Apply Online at our website www.churchillmortgage.com.