Q: I am really feeling frustrated by the way tax laws seem to be ambiguous and indistinct. If you glance quickly it makes sense but if you are in my shoes you take extra time to think about what exactly is a “five-consecutive-year period.”
In a prior story, you stated: “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.”
I meet all the criteria, however in my case I owned and lived in a home from September 2005 until December 2009 (52 months). It isn’t quite 60 months but I did live there for five consecutive years. I have all the documentation to show that I was in the home during a five-consecutive-year period but I want to see something in writing, from the IRS that states “60 months.”
It seems cut and dry (one year equals 12 months), but the way the rules is worded it leaves room for interpretation.
To further my case, the Form 5405 doesn’t even ask for specific months just simply asks “were you present during the five-consecutive-year period,” leading me to believe I am eligible.
Do you think you could help me look into this further or possibly direct me to a place I can research the actual law in black and white and not just editorial pieces on the IRS website or an IRS operator that has no idea what I am asking.
It is just far too much money for me to throw away if I (and many others) could in fact be eligible. The way the instructions are written will probably leave other people in this situation as well and if it is illegal and they do claim the credit, they could get into trouble.
I’m just looking for some clarification.
A: The 60-months figure that I cited is an extrapolation from a tax expert I spoke with about the $6,500 tax credit. According to CCH, which are publishers of tax information, the 5-year period is supposed to be five complete years. Five complete years is 60 months.
However, if you look at the revised form 5405, this is what it says in Part II, Question 3: “A long-time resident, enter $6,500 ($3,250 if married filing separately). A long-time resident is an individual (and that individual’s spouse if married) who has owned and used the same home as that individual’s main home for any 5-consecutive-year period during the 8-year period ending on the purchase date of the new main home and meets other requirements discussed in the instructions. See instructions for documentation to be attached.”
In the Instructions, the IRS makes it clear that when you file for either the $8,000 first-time home buyer tax credit or the $6,500 long-time resident tax credit, you must include certain pieces of documentation, along with the completed Form 5405.
For long-time homeowners, you must attach a copy of the HUD-1 settlement statement, a completed Form 5405 plus either a completed form 1098, mortgage interest statement, property tax records, or insurance records. According to the IRS instructions, “These records should be for 5 consecutive years of the 8-year period ending on the purchase date of the new main home.”
It seems pretty clear to me that the IRS is talking about 5 full years, or 60 months, but I know that someone is going to test this theory and see if there’s a little wiggle room. And, perhaps it will be allowed.
With your interpretation, you’re counting on the fact that you lived in the house during any five consecutive calendar years but not for five consecutive years. There is a distinction. I don’t know what the IRS will say about these cases, but it could go your way.
The IRS seems to be approving a home buyer tax credit for some people that I would have never guessed would qualify, including a first-time home buyer couple who earns a combined gross annual income of $1 million. But the husband earns $900,000 and the wife earns $100,000, and they were advised that if they file separately, she would be allowed a tax credit of $4,000.
Surely, these people don’t need a home buyer tax credit and I’m not sure that Congress intended a couple at this income level to qualify for a $4,000 home buyer tax credit, but the rules have apparently been bent a bit.
My concern for you is that you’re a few months short and the tax credit will be disallowed.
But what’s the worst thing that could happen? You won’t get the money. To be on the safe side, make sure you calculate any taxes that you owe without the tax credit, and be sure that you have those taxes paid in full by April 15 to avoid any penalties.
You might also consult with your tax preparer. Hope this helps.