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Published April 2010

First-time homebuyers share experiences with ARRA tax credit

By Kristen Miller

Many first-time homebuyers are likely taking advantage of the $8,000 tax credit made possible through the American Recovery and Reinvestment (ARRA) of 2009. While some have spent their credit on home improvements, others are still playing the waiting game.

Tadd and Cathryn Anderson* of Cokato purchased their first home together last October. After they closed on the house, the Andersons applied for the First-Time Homebuyers Credit by amending their 2008 tax return.

Two-and-a-half months passed and the couple still hadn’t received a reply. Mike called the Internal Revenue Service (IRS) and spent 45 minutes on hold.

When he finally was able to speak to a representative, he was told the information was with a tax examiner and he could expect to receive something in the mail within five days.

Seven days later (five business days from the post-marked date), the couple received a reply requesting additional information.

To continue further, the couple needed to provided a proof of primary residency. “Like we really didn’t live there,” Sally said.

Items requested to provide proof of primary residence were bank statements, pay stubs, and drivers’ licenses. Copies of the signed mortgage documents were also requested by the IRS.

Though only speculating, the couple believes the trouble is in the fact that they have a post office box as their mailing address, making it more difficult to provide the documents requested, Sally explained.

However, after contacting Amy Klobuchar’s office, the couple was told the program has been faced with fraudulent applications and the IRS is randomly auditing cases.

About a month after sending the additional information to the IRS, the Andersons received a letter stating the IRS was reviewing the supplemental documents and they should get a response within 30 days.

The couple still waits and it’s going on five months since they purchased the home and applied for the tax credit.

“I didn’t know it was going to be such a long process,” Sally said.

After first applying for the loan, the couple received estimates from local contractors for home improvements that now have been put on hold.

“It’s not like we were going to spend the money on an expensive European vacation. We were actually going to use it the way [the government] wanted us to,” Sally said.

Despite the unexpected complications they have encountered, the couple believes the tax credit has really helped the housing market and they are hopeful the money will eventually come.

“When it comes down to it, it hasn’t been that much work for an $8,000 pay-out. But, when you compare it to other first-time homebuyers who did get their credit right away, it’s frustrating,” Sally said.

Reginald and Gabriella Smith* of Glencoe purchased their first home together last July.

Since they knew about the tax credit before they bought the house, the couple prepared the paperwork by applying for the credit through an amendment to their 2008 taxes, just like the Andersons had done.

The day the couple closed on their new house, they also mailed the forms and patiently waited for their credit.

Within about a month, the couple received a check for $8,000 to do as they please.

“It was great,” Reginald said. “We didn’t want to just put it in the bank. It was meant to stimulate the economy,” he said.

So, the couple spent the money for home improvements including remodeling their bathroom, painting several rooms, and installing new flooring. In doing these improvements, they were able to hire local laborers and purchase supplies from the local hardware store, all of which helped stimulate the local economy.

“I think it’s a great program. It encourages new homebuyers to add value to their home at a time when it is needed,” he said.

First-time Homebuyer Credit

Some may recall the Housing and Economic Recovery Act of 2008, which established a tax credit for first-time homebuyers that was worth $7,500 for homes purchased in 2008. Similar to a low-interest loan, this credit had to be paid back in 15 equal payments beginning with the 2010 income tax season, according to information from the IRS.

The American Recovery and Reinvestment Act expanded this program by increasing the credit to $8,000 with no repayment necessary for homes purchased before Dec. 1, 2009.

In November, the new Worker, Homeowners and Business Assistance Act of 2009 extended the deadline to April 30, 2010, with a closing date prior to July 1.

For more information regarding this tax credit and the necessary forms needed, visit www.irs.gov.

*Names have been changed for the article.

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