Tax Credit Daze - Why It Might Take Months To Get Your Home Buyer Tax Credit Cash

(MoneyWatch) 

Last week, the IRS opened up for business (i.e. it's time to send in your tax returns, folks) and released the new form that home buyers eligible for a tax credit need in order to get their tax credit dollars.

But as is the case with most IRS rules and regulations, getting your tax credit cash isn't going to be as easy as you might have wished.

Start By Downloading Form 5405

The new Form 5405, the First-Time Homebuyer Credit and Repayment of the Credit form and its related instructions, have been published on the IRS.gov website. Eligible home buyers can download the form and use it to start filing their 2009 tax returns.

First-Time Buyers, Attach The Following Documents To Your Tax Return:

• Form 5405, filled out.
• A copy of the settlement statement showing all parties' names and signatures, property address, sales price, and date of purchase. You should be able to submit a properly executed Form HUD-1, Settlement Statement. Make sure you get a copy at your closing from the title or escrow company.
• For mobile home purchases who are unable to get a settlement statement, you'll need a copy of the executed retail sales contract showing all parties' names and signatures, property address, purchase price and date of purchase.
• For new home buyers, if a settlement statement is unavailable, you'll need a copy of the certificate of occupancy (COO) showing the owner's name, property address, and date of the certificate.

Long-Term Homeowners Will Need These Documents

To qualify for the long-term homeowner tax credit, the IRS has clarified that eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period (or, 60 consecutive months) during the eight-year period ending on the purchase date of the new home. Those homeowners claiming the long-term homeowner (also known as the "trade-up") tax credit will also have to file a paper federal income tax return and attach the following documents:

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

Due to the increasing instance of fraud connected to the home buyer tax credit, the IRS has stepped up compliance checks involving the home buyer tax credit, and it encouraged home buyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period they lived in the property as their primary residence.

What About IRS Free File?

Unfortunately, despite the fact that the vast majority of Americans now file electronically, those taxpayers claiming a first-time home buyer tax credit will have to file a paper federal income tax return. According to the IRS, taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation (see above).

How Long Will It Take To Get Your Tax Credit Cash?

The IRS says it normally takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. Federal income tax returns for 2009 with tax credit documentation will be processed beginning in February.

For those home buyers filing early, the IRS expects the first refunds based on the home buyer tax credit will be issued toward the end of March.

Here's something to chew on: If you wait until April 15, you might not get your tax credit cash until June.

For Faster Tax Credit Refunds, Sign Up For Direct Deposit

The IRS encourages taxpayers to sign up for direct deposit (where your refund is deposited automatically into your checking or savings account) as a way to speed up your refund payment. In addition, taxpayers can use Where's My Refund? on IRS.gov to track the status of their refund.

Read More:

• FHA Increases Down Payments For Some, Mortgage Insurance Premiums For All
• Do You Qualify For A Home Buyer Tax Credit?
• 11 Kitchen And Bath Trends For 2010
• Home Buyer Tax Credit: How To Cash In

Ilyce R. Glink is the author of several books, including 100 Questions Every First-Time Home Buyer Should Ask and the upcoming Buy, Close, Move In!. She blogs about money and real estate at ThinkGlink.com.