As with many good things in life – there are always a few people who are doing what they shouldn’t. In this case, there are quite a few people claiming that they are eligible for the 8000 tax credit when in fact they are not eligible for whatever reason.

If someone tries to claim the 8000 tax credit and is not eligible, this is considered tax fraud.

And according to the AP, there are more than just a few people who are trying to claim the tax credit that shouldn’t be.

Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns or amended returns claiming the credit for homes they had not yet purchased. Those claims amounted to $139 million and it was not clear that the IRS planned to go back to verify that those purchases actually took place, he said.

But that isn’t the only way that some people are trying to defraud the system:

George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.

And even more shocking – there were more than just a few people who were under the age of 18 (and as young as 4!) who tried to claim the tax credit:

He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old.

With the recent announcement of the extension and expansion of the 8000 tax credit, one can only hope that there are more controls in place to catch these kinds of frauds.  According to Mr. George, the IRS has tightened up on the controls they had in place:

George said that while the IRS has since taken steps to tighten oversight, “some key controls were missing to prevent an individual from erroneously or fraudulently claiming the credit.”

Let’s hope so. Losing a few hundred million to fraud isn’t exactly the thing that is going to be what bankrupts the country…

But it sure doesn’t help our overall financial situation.

With the success of the $8000 tax credit for first time home buyers in 2009 – Congress has recently decided to add an additional incentive for people who are not first time home buyers – but move up home buyers.

Move up home buyers are those people who currently own a home, but go out and buy a different home (usually a bigger or nicer one) to live in as their primary residence.  For much of the 1990’s and early 2000’s, the move up home buyer was the backbone of the housing market.

According to UPI, the move up home buyer tax credit may not spur as many new sales as the first time home buyer credit:

“On a percentage basis, the effect of the tax credit would be much smaller for current homeowners,” observed Thomas Popik, research director for Campbell Surveys. “We estimate that the first-time homebuyer tax credit will result in a 10 percent increase in home sales from March through November of 2009. We’d expect the effect of the proposed tax credit for current homeowners to be about half as large–from December until the tax credit expiration in the spring of next year, it might be five percent of three million transactions, or about 150,000 incremental home sales. Incremental sales to first-time homebuyers could be an additional 300,000, for a total of 450,000 incremental sales due to the tax credit extension.”

Here are the highlights to the 6500 tax credit for move up buyers:

• For “long time resident” homeowners who are purchasing a new home, the tax credit is 10% of the purchase price, with a maximum credit of $6,500.
• The income limits are now $125,000 for individuals / $225,000 for couples.
• The purchase price of the house must be below $800,000.
• Only primary residences are eligible for the tax credit. No second home or investment properties are eligible for the tax credit.
• For members of the Armed Forces deployed on duty outside the United States, the tax credits are extended to May 1, 2011 (must close before July 1. 2011) Must be deployed outside the U.S. for at least 90 days between Dec 31, 2008 – May 1, 2010.
• Due to fraud in the 2009 new home buyers tax credit, more fraud prevention measures are now in place – so make sure you qualify before applying for the credit!

If you still have questions about the 6500 tax credit for move up buyers, be sure to ask your loan officer or your CPA – but make sure you hurry before the credit expires this spring!

Recently, the $8000 tax credit was extended and expanded to also include a $6,500 tax credit for move up buyers. The tax credit has been popular with people who are first time home buyers and there was quite a bit of discussion as to whether or not Congress would/should extend the deadline beyond the original November 30, 2009 deadline.

But with the tax credit extension now official, here are a few of the highlights courtesy of CNN:

The legislation also will extend the $8,000 homebuyer tax credit to contracts signed by April 30 and closed by June 30. The controversial credit, which many say has boosted home sales in recent months, was set to expire after Nov. 30.

The bill also creates a $6,500 credit for those who buy a home after living in their current house at least five years. That measure will apply to contracts signed by April 30 and closed by June 30. The current credit defines a first-time homebuyer as someone who has not owned a residence within the past three years.

The credit will be available only for the purchase of principal residences priced at $800,000 or less.

The bill will raise the adjusted gross income cap to $125,000 for single filers and $225,000 for joint filers. The amount of the credit currently begins to phase out for taxpayers whose adjusted gross income is more than $75,000, or $150,000 for joint filers.

How much will this 8000 tax credit extension cost the taxpayers?

According to the article:

The extension will cost $10.8 billion over 10 years, according to the Joint Committee on Taxation.

Whether it is worth it or not remains to be seen. I suspect that in about 30 years from now, when our children and grandchildren are worried about paying the debt we have left them – that will probably be the time to make the best judgment as to whether or not it was worth it.

Don’t ask anyone in 2010, it is too early to tell!