Can I Use My Homebuyer Tax Credit As A Down Payment?by Tim Manni
Several homebuyers have begun to ask their lenders whether or not they can use their $8,000 first-time home buyer tax credit as the down payment for their newly-purchased home. According to the Mortgage Grapevine, several borrowers have been told that this process is legit. We don’t know who is telling borrowers they can do this, but some mortgage professionals are warning borrowers that this practice may be considered tax fraud.
The following is from contributor lighthouse1 on the Mortgage Grapevine:
I’m not a tax professional either but I cannot see how this does not play out as tax fraud. You become eligible for the credit when you purchase the home and the form asks for that date. I guess they are betting on not getting audited. People could lose big time on this. I would love to hear from a tax professional how they are justifying this. I personally can tell you that I would not want to be an IRS test case for this. People (usually not the tax “professional”) end up in jail over this kind of thing.
So what’s the truth? It’s best to consult the IRS:
Q. I am in the process of buying a home. I expect to close the deal before December 1, 2009. Can I claim the first-time homebuyer credit now? That would allow me to use the refund for a down payment.
A. No. You may not claim the credit in anticipation of a purchase that has yet to happen. Until you have finalized the purchase of your home, which for most purchasers occurs at the time of the closing, you do not qualify for the credit. IRS news release 2009-27, First-Time Homebuyers Have Several Options to Maximize New Tax Credit, contains details for filing options if the home is purchased after April 15, 2009.
Here’s what may be making this issue a gray area: the fact that some borrowers have applied for this tax credit, received it, and it’s already been deposited in their bank account. Does this justify the process?
We’re still learning as much as we can on this topic, so please feel free to share any additional information you may have regarding whether or not you may use the first-time homebuyer tax credit (IRS form 5405) as a down payment.