Get clients to sign release on First-Time Homeowners Credit

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Eva Rosenberg, MBA, EA - Los Angeles, CA - During the Spidell Federal and California update this week, Steve Honeyman, CPA talked about the First Time Homeowners Credit. You know, the credit that's really a loan. Yes, that one.

If you don't already know all about it, read this recent Tax Quip (#1077) and the MarketWatch.com article linked in the Resource Box below the TaxQuip.

Today's issue is about your client's understanding of this credit - and their memory, later on.

Honeyman pointed out that some clients will absolutely refuse to use the credit once they understand that, for the next 15 years, they will be responsible for paying $500 on each tax return. Not only is it a hardship to come up with that money; but they may be concerned about forgetting to include that line item on their tax returns. So they will opt of out using the credit.

That sounds perfectly reasonable, doesn't it?

Sure, until the guy is standing around the water cooler 2 or 3 years later and someone talks about the $7,500 he got back when he bought his house in 2009. Your client will realize HE never got that kind of money. And he will come raging at you accusing you of short-changing him.

What does Spidell suggest you do?

This year, when you prepare the tax return, have your client sign a disclosure statement saying that you have explained the First-Time Homeowners Credit to him - or her. Be sure to specify the potential $7,500 credit available AND the 15-year payback responsibility. Put a check box on the form so they can select to opt in or opt of using the credit. Have the client sign the form.

This way, if they do opt to use the credit, you will have evidence that you've informed them about the 15-year payback obligation. After all, you know that next year when it comes time to pay - your client is apt to get angry about this extra assessment.

Another tip - if your clients use the First-Time Homeowners Credit, have them increase their withholding or estimated tax payments to cover the extra $500 during the year. It won't hurt as much, if they don't have to take money out of pocket in April.

Any ideas for the wording of the disclosure document are welcome. Spidell may come up with one for their seminar attendees. Or Honeyman suggested you ask your malpractice insurance carrier. They may have a document already.

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