I have been asked numerous times whether congress will vote to extend the home buyers credit. It is situations like this that help to make the point that the more people try to game the system, the more difficult the IRS is to deal with.
Government investigators revealed today that fraud is rampant in the First-Time Homebuyer Tax Credit program. Over 100,000 taxpayers have tried to cheat the system, the IRS says. Some of filers for the credit were just four years old.
The program allows people who haven’t bought a home in the past three years to claim up to an $8,000 tax credit, based on the home purchase price and their income level. It is credited with helping lift the housing market, and Realtors and other real estate industry groups are lobbying for its expansion and extension.
There are plenty of taxation philosopher who decry the use of tax credits/deductions to regulate the economy:
The objective of most sound tax policy is for the tax code to interfere with household and business decisions as little as possible—that is, to let decisions be made on economic fundamentals, not based on their tax treatment. Housing tax subsidies have violated this tenet of sound tax policy and distorted household decisions in several important ways. First, they encourage investment in housing over investment elsewhere in the economy, namely business investment. Secondly—and this is something that should be appreciated more right now—the deductions for mortgage interest and real estate taxes paid grow with the size of the house and the mortgage, encouraging the financing of oversized houses with oversized loans. It would go too far to blame the current housing crisis on the existing tax subsidies, but they certainly haven’t helped matters.
It is too late and too political to remove overly complicated politically motivated creaziness from the tax code, but perhaps a little awareness can help.
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I forgot to mention: What we are seeing is that attaching your HUD statement to a tax returning claiming this credit has been helpful in avoiding problems.