Does the First Time Home Buyer Tax Credit Need to be Repaid?
2008 $7,500 Tax Credit
Are there any circumstances where I would have to repay the $7,500 credit?
Yes. Remember, this $7,500 credit basically acts as an interest free home loan from the federal government. You will be required to pay back the full credit over 15 years or when you sell your home.
The payment period is 15 years; but if the house is sold before the 15 years, then any amount that's not yet been repaid must be paid back. This is done on your tax return for the year of the sale and repayment is limited to the amount of gain of the sale. If you sell your home and there is insufficient profit, the remaining credit payback would be forgiven.
Please be aware that there may be repayment exceptions for the $7,500 tax credit that are not detailed in this report.
2009 $8,000 Tax Credit
Are there any circumstances where I would have to repay the $8,000 credit?
One situation does require recapture payment back to the government. If you claim the credit but then sell the property within 3 years of the date of purchase, you are required to pay back the full amount of any credit. A few exceptions apply.
What does the term “recaptured” mean?
To take full advantage of the 2009 tax credit, you need to plan on staying in your new home for 3 consecutive years after purchase. If you sell your new home on which you claimed the tax credit within 3 years, the government will recapture the credits they’ve given you, including the entire amount of the tax credit and any refund that was sent to you.
This is done through your tax return the year the house is sold. If you are not expecting a tax refund to cover the amount you owe, you will have to mail a check to the IRS for the balance.
What happens to the tax credit in the event of a death, divorce or natural disaster within the 3 years of purchasing the home?
The repayment rules are eased for many circumstances. If the homeowner who used the credit dies within the first three years of ownership, there is no recapture. Special rules make adjustments for people who sell homes as a part of a divorce settlement, as well. Similarly, adjustments are made in the case of a home that is part of an involuntary conversion (property is destroyed in a natural disaster or subject to condemnation by eminent domain by an authorized agency) within the first 3 years. Please be aware that there may be repayment exceptions for the $8,000 tax credit that are not detailed in this section.
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