You have one week left to take advantage of the First Time Homebuyer's Credit. Then it is gone - hopefully, forever gone. That roar you hear is the cheering of tax preparers everywhere - but more on that later.
As it looks now, the First Time Home Buyer's Credit will not be extended. That gives qualified taxpayers one week to enter into a binding contract to purchase their new home. If they meet that deadline, they have until June 30th to close and qualify for the credit. The credit is 10% of the purchase price up to $8000 for the "first time" homebuyer and $6500 for the "long term resident." Most of the details of the current program are in a post from December. The credit can be taken on your 2010 return or by amending your 2009 return. The time limit is on the actual home purchase.
The First Time Homebuyer's Credit is a good example of the two biggest problems with our tax system; fraud and Congress.
There have always been people who have cheated on their taxes but now there seems to be a cottage industry in tax fraud. The frauds which gain the most attention, and are the most lucrative, are based in the credits. Inflating Sch A deductions could get a taxpayer more of their own money back, but the refundable credits let you tap into other people's money for a big take. These are good programs and they help a lot of taxpayers and their families through the year but too many dishonest people have figured out how to cheat the system. The pump is primed and once they know how to scam one credit, it's easy to figure out how to scam the new credit. That's what happened with the Homebuyer's credit part 1 and especially part 2. Pick a price and date, fill out a form and just wait for the money. Too Easy!
The IRS and honest tax professionals are working to cut down the credit fraud but Congress needs to start doing their part. The IRS develops programs to screen for potential fraud and preparers do due diligence to help screen out taxpayers who don't qualify. If Congress insists on using the tax system to social engineer, they need to approach new credits and deductions from a cheater's point of view. Then ask what needs to be built into the law to deflect some of the fraud. Not just documentation but age of taxpayer or how related parties are defined. That kind of stuff. But most of all, give the IRS time to set up their computers and screening processes. This pass the law today and give out the money tomorrow may look good to some taxpayers but most of us would prefer accuracy over speed.
Even if there is little chance of fraud, Congress needs to think a law through. Not just benefits and administration but who is it going to hurt. Collateral damage should not be a tax term. If you doubt me, ask all the people who got hurt by the Making Work Pay Credit.