$7500 First Time Homebuyer Tax Credit

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Farm House with Rising SunUpdate 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal. The credit is set to expire November 30th unless it is extended (which is currently being discussed).

Senate Republicans added a provision that would make the credit a $15,000 tax credit for all home-buyers, not just first time home-buyers. It would also be a true credit, not a “credit” you have to pay back over 15 years.

One of the big pieces of the housing rescue bill, passed and signed into law in July, was a $7,500 “tax credit” for first time homebuyers. While experts aren’t sure whether it’s “going to work,” these types of tax credits have been used in the past so they do have some history.

There is one aspect of this bill that is surprising and it has to do with one of the qualification rules. You can own a vacation home or a rental property and still qualify for this tax credit. I don’t know if it’s an oversight because of the strict determination of “primary residence” or if it was an intended rule. I don’t think individuals who own rental property or vacation homes necessarily need assistance on buying a primary residence.

First Time Homebuyer Tax Credit Rules

To qualify, you must satisfy these conditions:

  • The home much be purchased as a primary residence.
  • You must not have owned a primary residence in the last three years. For couples, both individuals must not have owned a primary residence in the last three years. Vacation homes and rental properties don’t affect this (you aren’t DQ’d if you have a vacation home or rental property).
  • Must not be a non-resident alien as defined by the IRS in Publication 519.
  • Individuals must have a modified adjusted gross income of less than $75,000 annually and couples MAGI of less than $150,000 to qualify for the full amount.
  • The phaseout range begins at $75,000 and ends at $95,000 for individuals, $150,000 and $170,000 respectively for couples.
  • The home must be closed between April 9th, 2008 and July 1st, 2009.
  • No mention of a credit score or history requirement, but knowing that will help when it comes to getting a mortgage. I recommend checking out, a service of Fair Isaac, the people who invented the FICO credit score.

How the “tax credit” works:

  • The tax credit is 10% of the home’s sale price with a maximum of $7500.
  • You can claim the credit on taxes filed in 2008 or 2009.
  • It’s a credit and not a deduction (difference between tax credit and tax deduction).
  • “Tax credit” is a misnomer because it’s really a zero percent loan with some qualifications.

Tax Credit Loan Repayment Terms

The tax credit isn’t really a tax credit, it’s really just a tax free loan with some qualifications. You have to start paying back this loan within two years and you make equal payments over 15 years. When you sell your home, any profits will go first into paying off that loan. If you sell at a loss, the difference will be forgiven… meaning you will not owe any money on the loan (though it should be recorded as income as is typical with most loan forgiveness agreements, so you will owe taxes on it).

Should You Do It?

I would, why wouldn’t you take an interest free loan? 🙂

(Photo: orvaratli)

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1,255 Responses to “$7500 First Time Homebuyer Tax Credit”

  1. Brian says:

    Ok, I have a question that my CPA isn’t sure about, and after reading a lot, neither am I…

    My understanding was that if I sold, and took a loss on the home, the repayment would be forgiven. I never read anything about 36 months in the residence (we were there about 2 years). We sold, at about a 5k loss.

    My CPA never mentioned anything about the 36 months that I read above (consulted him beforehand), is the 36 months true?

    Also, my CPA now seems to think that the $7500 needs to be taken off the purchase price, which would in turn leave us with about a $2500 profit once calculated. That seems kind of odd, and I haven’t read anything about that.

    Can somebody help clear this up for me, as I’m not going to blindly trust my CPA at my possible expense… Additionally, there is a strong likelihood that I will be using a new CPA moving forward.



    • Lynne says:

      Brian, I am interested in doing something similar; although, I was told my my tax preparer that I would have to subtract the 7500 from my purchase price in order for it to truly be a loss. This is the first I’ve heard about the 36 months. Gosh, I hope that’s not ture…I hope to leave before then. Please let us know what you find out.

      Thanks and good luck,

    • JP says:


      You may have to repay. There is no time limit that I’ve read about.

      Here is the formula:
      Purchase Price+Credit Received-2010 Credit repayment = Basis

      Selling Price(even if foreclosed) – Basis = Immediate Repayment

      Obviously if that number equals 0 or is negative there is no repayment.

      You actually will have wanted at least a loss of $7000 to qualify for no repayment(assuming you paid 500 last year).

      This is taken directly from the Repayment Credit form from the IRS, and according to HR Block tax software.

      Why dump your CPA when he is correct? There is a $1500 dollar penalty + sizable interest to pay if you try to say you had 0 profit when you actually had $2500. Not his fault, but you are better off hearing the truth rather than paying the penalty + interest + the amount owed.

    • Tee says:

      Brian, according to the rules of the First Time Home Buyer program if the home you purchased is not your primary residence for 36 months then you must repay repay the credit. I spoke with the IRS just yesterday and the agent informed me that the entire amount would have been be repaid on my home as I plan on moving out 1 yr shy of my 36 months to take a job in another state. Even if you rent out your home, you still have to repay the money because it is no longer your primary home. Additionally, if you live in California and you took advantage of their first time home buyer program as well, the residence must be your primary residence for 24 months. Hope this helps.

  2. Steve says:

    I e-mailed my senator and her staffer called me back to tell me there was nothing that could be done unless it was approved in congress!

    However, I did read somewhere if you paid the 08 credit in full and then took the credit for your 09 return you can get around the repayment! That way you get it as part of your 09 return a gift! I also heard that alot of criminals were cashing in on the homebuyer tax credit behind bars! Sounds complicated and difficult! Does anyone know if this can be done?

  3. Single mom says:

    I bought a house in 2008 and filed for the first time home buyers credit and recieved the $7500 interest free loan on the joint tax return I filed with my husband(now my x-husband) that year and we understood that we would have to start repaying it in 2011. But since then I went through a devorce and could not afford to keep up the house payments by myself and the bank foreclosed on the house and i had to move out and the home was sold at a loss by the bank. I now still owe the Bank money on the remainder of the loan that was not paid off at the time of the sale. Will I now have to pay back my half of the first time home buyer’s credit all at once this year too? Or since it was foreclosed on and sold at a loss by the bank, will I not have to repay it? I am a single mom living in a appartment and taking care of my daughter all by myself and was hoping to get a little money back on my taxes this year. Certainly didnt think I would end up oweing money. Is there anyone who knows how it works when your home is foreclosed on and sold at a loss by the bank? Do I still have to repay my half and if so do I have to pay it back all at once? Please help if you know. Thank you so much.

    • Kelley says:

      Hi Single Mom,

      I was in the same exact boat as you and was pretty scared when my home went into foreclosure and the prospect of repaying this loan scared the crap out of me. I am sure since now it is past tax season, youve already figured it out, but, I filed a form along with my 2010 taxes for the Loan Repayment and only have to pay $500 a year. Any refund that is owed to me they will take out the $500 automatically, and send what ever is left. Just be sure that you calculate what you owe normally with your taxes, and then add a little extra each paycheck to ensure that you will have the $500 at the end of each year.

  4. nkj says:

    love the conversation! I’m in the 2008 pool. feel grateful to have a decent job, lovely condo, good health, and excellent friends & family. sucks to have to pay the $7500, but I knew all along that I would have to.. so was mentally prepared for it.

    I wish all of you success & the ability to be grateful, even in these difficult times.

  5. Lynne says:

    I’m seriously considering selling for a loss now that I need to move. The thing of it is: I bought my house for 95,000 and could sell it for 87,000 (that covers the loss and the 7,500 I will owe). This way, I’ll only owe the bank 3,300 instead of the gov’t 7,500. Good idea; bad? Anyone done this? Thanks for the help!

  6. MikeZ says:

    I took the 7500 tax credit in 2008, dumped it into the stock market and now its worth 22K. So thanks you Uncle Sam! It kinda sucks that I have to pay it back when its now free money for other home buyers but what are you going to do? You could never make a case that the 2008 people deserve the free money because then anyone who’s ever bought a home could make a case for it. Looks like I’ll need to pay it back in one lump sum too because I’m planning to move out before living here for 5 years.

  7. Autumne says:

    Ok, So I am another one who missed out on the totally free money in 09 when I closed in 08. Now I want to sell my home and owe the IRS 7000 cause I already gave them 500.00. Does anyone know if you can make payment arrangements on the remaining balance? Or is it truly just the lump sum?

  8. Matt says:

    My wife and I bought a house in 2008, got our $7500, and were loving it. I got a job and just recently moved. That house is currently on the market and was not our primary residency starting on December 28, 2010. We will be selling it for LESS then we bought it for, thus not having to pay back the $7500. However, we have not sold it yet and when I note that its not our house of primary residency and that I haven’t sold it for less then we bought it for (bc its still on the market), it says we have to pay back the $7500 in full now.

    I would love to just pay the $500 back this year (saying its our primary residency) and then file the following year the sale of loss. Is this ethical?

    • Stephanie says:

      Matt – Did you find an answer to this? I’m in the same situation and not sure whether or not to report it as a primary residence until it sells. Thanks!

    • Ed says:

      I have the same senario but I am not going to sell the house… Can’t afford to eat the loss. I am trying to rent it now and I’m paying 2 mortgages. I lived in it he house just under 3 years and had to move for work. i don’t mind paying it back $500/yr I just can’t afford to pay it lump sum. Let me know if you hear anything on this as well.

  9. stephanie goldthwaite says:

    I got the loan in 2009, and im sorry i do not see how ya’ll thought it didn’t need to be paid back! You sign a piece of paper stating it is a loan and that it will be paid back so now all of a sudden now that your not enjoying that money are you going to sit there and say well i didn’t know! That’s just bull! Apparently whoever “didn’t know” gets suckered into signing their names on alot of things they don’t read so therefore your probably in debt because you don’t read what you are signing! It’s NOT the governments fault your to dumb to read what your signing and anybody that says they didn’t have to sign something is just dumb! Just sayin!

    • Bob says:

      Steph…get off your high horse!

      • Scott says:

        Hopefully, your comment is based upon negative reactions from recipients in 09,10. I too signed up for the fthbc in 2008 KNOWING that I had to pay it back over the next 15years. What I, and many others are upset about is that if we had waited until 09(3 months for me) then we would not have to pay it back. Why should acting early on a limited time offer from the government require me to pay back several thousands of dollars but if you waited……….FREE MONEY!
        Our congress is trite…..has been for years.

    • dan s says:

      easy to say when you aren’t in our shoes

    • Amanda says:

      You might want to make sure that what you are writing is grammatically correct before you start calling other people dumb. Just a thought…

    • Tomeka says:

      Wow! Stephanie Goldthwaite. YOu can tell you got ur money. YEs I enjoyed my money. Apparently you didnt read everyones post before you went on and on about something you did not know about. Basically most peole are saying there taxes are being held up because the government cant get there stuff together as usual. And apparently you said this out of dumbness rattle these people up. But guess what MRs. Stephanie, Carma is a something else. Pump ur breaks girl!WoW!

    • cheryl says:

      I honestly don’t believe that these people didn’t know they had to pay it back…but like ME…didn’t know it would be due in full if the house was foreclosed upon or sold. Payments per year was the plan. Losing jobs and homes, then having one big ass lump sum due was not the plan princess. So, get a life. Can’t you feel the fear as you read these letters?

    • Lexy says:

      First off you are sayin you bought your home in 2009. So you come on here talking crap about people not wanting to have to pay the amount back. You dont understand cuz you DONT have to pay it back. I bet if you had bought in 2008 and HAD to pay it back, but you were seeing people that bought a home a year later and didn’t have to pay it back you would be upset as well. So dont come on here and bash people.

    • Sonny says:

      I know I’m lkate to the thread here–but this comment can nto go by uncommente don:

      How rude and unknowledgable you are, Steph. There ARE some ppl that didn’t know it was a loan. Me for instance. Turbotax idetified this loan as a credit–as the name says–a CREDIT, not aloan. I failed to go read up on it–but then how many of us read up on the steps that Turbotaz takes?? Close to zero. Turbotax failed to identify it as a loan–their bad, not mine. I just did ‘normal’, not stupid or dumb. I didn’t sign my name on ANY papers other than my tax return. And yep, I sure did read thru those.

      So who is the ‘dumb one’? Looks like you are in your self-centered-I’m-so-much-righter-than-everyone-else way. Big BOO to you.

  10. Lorena says:

    I bought a house under my name and my brother in 2008 and took the $7,500.00 First Time Home Buyer Tax Credit.Me and my husband filed jointly last year. He has nothing to do with the Tax credit but received a noticed of repayment. Since it was my brother who took the credit can I just pay the $500.00. Me and my husband is separated and filing separately this year.

  11. Lorena says:

    Me and my brother bought a house in 2008.We took the $7500.00 First Time Homebuyer Tax Credit. My husband has nothing to do with the repayment since he is not on the loan and deed and never gotten a share of the money.We are now separated and I would like to shoulder the $500.00 yearly payments. How will I do this?

  12. Janman says:

    I am in the military an will be moving to a new pot soon. I was told I have to live in the home for three years before I can sell due to receiving the loan. I have lived in this home for two years now and do not want to deal with the hastle of renting. Is there an actual stipulation for me to sell my home or can I sell once I redeploy back to America?

    • Jonathan says:

      Read into the regulations but I believe their is a forgiveness if you are active duty military and have to move due to orders.

      Thank you for your service.

  13. Anonymous says:

    Can 2010 non-refundable tax credits be applied against repayment of the 2008 First-time Homebuyer’s Tax Credit for 2010 taxes?

  14. asdfjkl says:

    Can 2010 non-refundable tax credits be applied against repayment of the 2008 First-time Homebuyer’s Tax Credit for 2010 taxes

  15. Garrett says:

    So if the $7500 credit was taken in 2008 and the home was sold in 2010 as a short sale (100,000 loss)–the “loan” is forgiven? Do I need to still file a FORM 5405? ANyone do this yet?


  16. Just Me says:

    Okay, I understood it was an interest free loan- signed the forms in 2008 with full knowledge (yes it did say so in the forms when you filed people) In fact I was just happy to get the much needed extra cash. I am perfectly fine with repaying it too- got my reminder notice and all that jazz. Do I think it’s unfair that later filers don’t have to pay it back? Sure but that’s the way it happens sometimes and frankly I don’t want to complain when I knew what I was getting into to begin with. My problem is that when I filed electronically it got rejected BECAUSE I filled out everything to start my repayment. I called the IRS to ask if there was a way to manually send my payment rather than in my return and they said “no” and that likely I will have to file my return by snail mail- because there is a glitch in their system that is auto denying filers who fill out to repay their credit! Okay so here’s my question- if I remove the info about the credit repayment from my return and electronically file, what are the chances it will get rejected/flagged? I want to pay back the IRS and am happy to do it any other way as long as I can efile my taxes because frankly I don’t want (and financially can’t) wait 6-8 weeks for my refund.

    • Josh says:

      file your return electronically without the repayment. Once that is accepted, amend the return adding the re-payment and mail that in. That way you’ll be in compliance and will still get your refund quickly.

  17. Travis Hauert says:

    So I paid my first instalment of 500 and low and behold they turn around and give it back to me, telling me it was a mistake, now they want me to send it back in… I don’t get it!

    • Jon says:

      what was the mistake? did you not take the full credit of 7500?
      If you didn’t, then you had to divide the lower amount by 15.
      please let me know, I think i screwed up too.

    • LJL says:

      My son just rec’d his refund yesterday, 3/11. It included the $500 installment he paid for the 2008 FTHBC! I told him to just sit tight — the IRS would be requesting it back shortly! What a mess they’re having handling form 5405!

      • CB says:

        I received the $500 (included in my refund)I just paid back, too.

        Now I am confused at what action I need to take to repay the $500.

    • CB says:

      The same thing happened to me. Although, I have not received the request to pay the $500 back.

      How soon after you received the letter stating it was a mistake did you receive the request asking you to pay it back?

  18. J says:

    Does this mean that if I wanted to sell my home I will have to pay the full $7,500 all at once… instead of yearly? Please let me know asap. Thanks!!!

  19. Tracey says:

    This is total BS you can fix the paperwork later just take your money we owe for this year and give us our refund don’t punish us because your paperwork is wrong !!!!!

  20. Bryan says:

    So, I was hoping someone could help me out!! I just received notice in the mail that the $7500 credit I received for a home bought in 2008. I know supposedly owe the full $7500 a $1500 penalty and $702 in interest. When my girlfriend and I bought the home in 2008 we were single and co-signed the mortgage together. She was a first time home buyer, so she applied for the credit. We actually married later in 2008 and filed jointly and now the IRS is stating we should not have received the credit because I did own a primary residence home previously.

    If one of two co-signers is eligible for the credit, can’t they apply for the credit?? Our Realtor at the time said that we were eligible since we were not married at the time we bought the home. If anyone has any info on this, I would love to hear any input. Thanks!

    • Jaime M. says:

      I just read this from the irs website, so you shouldn’t have to pay the loan back. Good luck!

      First-Time Homebuyer Credit: Scenarios

      S1. If a single person (Taxpayer A) qualifies as a first-time homebuyer at the time he/she purchases a home with someone (Taxpayer B) that is not a first-time homebuyer and then later that year they marry each other, is the credit still allowed?

      A. Eligibility for the first-time homebuyer credit is determined on the date of purchase. If Taxpayer A, a first-time homebuyer, buys a house and then later that year marries Taxpayer B, not a first-time homebuyer, the credit is allowable to Taxpayer A. Taxpayer A may take the maximum credit.

      Here is the link to the page:,,id=206294,00.html

  21. Jaime says:

    I took the 2008 $7500 credit and sold the house in 2010 in a short sale did not get a 1099 from the mortgage company, do I still have to repay?

    • XQ says:

      Jaime, you will receive an 1099 form from your mortgage company. It’s the bank’s way of writing off their loss. I received my 1099-C 2 months after my short sale was completed. Not sure if you have to repay tax credit. My client in real estate is going through the same thing.

  22. Curious George says:

    In 2008, I purchased my first house I received the 7500 tax credit. Can I amended my 08 Return and refile for the 8000 credit to cover the 7500? if so how do I go about doing it ?

  23. Kellie says:

    I filed early and am paying back my first $500.00.
    I still havent got my return for 2010, bacause they have a system problem, Really??? will i get penalty fees added on top for having to wait an extra 6 weeks to get it??? They would if I owed them, right? This is bull, next year I will just right a check on April 15th, so they dont get confused.

  24. Kate says:

    I called the IRS and the woman I spoke with answered this question for me but she wasn’t really sure. I got the $7,500 first time homebuyer credit for a house I purchased in 2008. This is the first year I am starting to pay back the credit at $500. I filed my taxes and I am getting both a federal and State refund. Is the $500 already deducted from my return? Or do I have to mail in some special form and payment for the $500 from what I get in my return? I called the IRS and the woman said “You mail in the payment with your taxes on what you owe” I said: “I don’t owe anything this year, I’m getting a refund. So do I get my refund and then write a check for $500 and mail that in to the IRS?” she said, “Um no its already been added in on your taxes so if you don’t owe then you don’t send anything.” Does anyone know if that is true? I just do nothing and hope its been paid for out of my taxes?

  25. Ryan says:

    Has anyone got their refund yet who got the $7,500 tax credit? It’s been over a month and I called the IRS a week ago and they said there has been a delay with the re-payment form. 5405

    • Amy says:

      I haven’t received my credit yet – they are making me send in all the paperwork to show that I am eligeble for the credit. They are not able to tell me why they are not able to send me my refund.

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