Homebuyers wait for tax credit

Millions of first-time homebuyers scrambled into the market, hoping to grab an $8,000 tax credit. But IRS delays are making it tough for consumers.

Mike McIlheran had a plan for his $8,000 first-time-homebuyer tax credit. First, he and his wife, Deb, were going to buy a riding lawn mower. Then they were going to install a sprinkler system and spruce up the yard of their five-bedroom home in Brooklyn Center, Minn. But first, they needed the tax refund. Like many first-time buyers, the McIlherans didn’t have extra cash available after purchasing their home.

What they thought would be an eight-week wait for the tax refund turned into 20 weeks. “Why extend a program that the government isn’t paying on NOW?” said McIlheran, 52, who works as a driver in the funeral industry. “We lived on beans and wieners … every penny went into the down payment.” Millions of home seekers have scrambled into the market, pushed by the $8,000 and $6,500 homebuyer tax credits.

The credits, extended in November through mid-2010, have been touted by everyone from real estate agents to senators as a way to give the economy a needed boost. But to get the money, homebuyers have to amend their 2008 tax returns or wait to claim the credit on their 2009 taxes. Delays in the time it’s taking for the IRS to review amended 2008 tax returns and cut checks is making it tough for consumers to spend the money on new couches, flat-screen TVs and storm windows.

The delays trouble U.S. Sen. Amy Klobuchar, D-Minn., whose office is receiving calls from constituents like McIlheran wondering, “Where’s my money?” She sent a letter to the IRS inquiring about the long waits and what’s being done to get Minnesotans their cash. “The full and immediate economic impact of the tax credit is lost when it takes up to four months for people to get the money due to them … such lengthy delays are unacceptable and erode the public’s trust in the competence of the government,” she wrote.

IRS spokeswoman Carrie Resch said the agency cannot comment on specific taxpayer cases. But she acknowledged the agency is seeing a higher volume of amended tax returns than anticipated, though she would not attribute the backlog directly to the homebuyer tax credit. Amendments might also be up because of other recent tax-law changes, she said.

As of mid-September, more than 1.4 million taxpayers, 28,700 of them in Minnesota, had requested the credit by amending their federal tax returns. The IRS projected in October that amended 2008 returns filed using the 1040X form will be up 5.8 percent by year-end, to 5,082,900. That doesn’t account for November’s extension and expansion of the credit.

Because amended returns are reviewed by hand and the volume is high, the IRS has extended the processing time frame for amended returns to 12 to 16 weeks.

Connie Anderson is still counting the days. The 55-year-old moved into her two-bedroom fixer-upper in Isanti, Minn., in May. She fixed serious problems with the stairs, plumbing and electricity right away. “I’ve basically spent my emergency money assuming it would be replaced right away,” she said.

It wasn’t.

Over the next few months, the IRS asked for mortgage documents, homestead information, even utility bills to prove she lives in the home for which she saved for nine years. She said she still doesn’t understand why. The latest estimate for receiving the credit she requested on June 10? Jan. 16.

The IRS may be acting more cautiously after finding instances of fraudulent claims for the homebuyer credits. A Government Accountability Office report found that, as of Sept. 30, the “IRS had (1) frozen more than 110,000 refunds pending civil or criminal examinations, (2) identified 167 criminal schemes and (3) begun 115 criminal investigations” relating to the homebuyer credit.

Due to the delays and the time of year, taxpayers who wait and claim the credit when they e-file their 2009 returns could very well see their $8,000 sooner than taxpayers who amend their 2008 taxes.