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$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Farm House with Rising SunUpdate 2/12: The $15,000 provision has been replaced by an $8,000 first-time home buyer credit, according to the Wall Street Journal.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 myFICO.com, 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. Jon says:

    Took tax credit in 08 when I bought home. Sold house for a loss Nov 2010. Form 5405 states no repayment of loan if there is loss on the sale of them home. Recieved 2010 tax refund today that included $500 first installment of repayment. Called the IRS today, rep stated they had a major system malfunction with returns including the 5405. She said a letter was sent out, I need to dispute and send back. Apparently the screwed up thousands of returns.

  2. dave says:

    come on does anyone really know if we have to pay the 7500 back our not, i took out 250 from my taxes and the irs took out another 250. do we our dont we have to pay this back?

    • Pam says:

      Oh yeah…we gotta pay it back! Which REALLY infurates me, since everyone was just handed $8k right afterward. I have written everyone from Obama on down. Nobody cares. I try not to think about it, especially since my property is worth a third of what I paid.

      • Mike says:

        What is with all of you people griping. For some reason you seem to think that everyone after 08 doesnt have to pay back these tax credits. I bought my house in Feb 10 and I have to pay mine back just like you all do..

  3. bryan says:

    so I spoke with a irs rep today she said it could take up to 30 days after the date u should have got them back it has been 37 day all ready she said I should get them back at the end of march or the beginning to middle of April. the funny part is my cousin did it to and she got hers back last week. It is scary that these people are in charge of the money for the whole USA. d

  4. tt says:

    I bought a house in 2010 big mistake and realize I moved too fast. I received the first time home buyers credit. I’ve been in the house for a year and want to sell. How do I pay the IRS back in one lump sum or what? Pleeease help!

  5. Amy says:

    Anyone else being asked to send in paperwork to the IRS that took the $7500 credit? I have been sending in paperwork to them since Nov – they just got back to me and asked for more paperwork. I bought my home in Nov 2008 and got married 2 weeks later and married. I took the $7500, and purchased the home in my own name. Did I do something incorrectly?

    • Ncoll says:

      I purchased my house in 2008 and I am being made to repay, plus penalties and interest. I sold another house in 2005, there is a month over lapped. Therefore I do not qualify for the home buyer tax credit. Can someone refer me to a good tax attorney?

      • 843 form says:

        Ncoll
        was not qualified!!! you can send form 843 and ask for interest relief…if the TAX-EXAMINER agree…and (((must have good reasons)) good luck

  6. B says:

    Didn’t any of you people read the stipulations of the tax credit before you decided to take advantage of it. Some of you people act like you don’t have a clue.

  7. alex says:

    I realize that in 2008 i agreed to pay back a loan and thats a sweet deal but …. I closed in Dec. of 2008 only to find out that a matter of days cost me 7500 bucks … Tell me how thats fair not to go back and amend the whole deal so no one has to pay it back? Yes its a great deal and bs at the same time!

  8. Linda says:

    Built new home & took the 2008 credit since did not move into home until mid-April (IRS guidance indicated “date occupied” is considered purchase date for new construction). IRS took 3 mos to review addl paperwork requested 12/10 & now must repay in full + $2,200 in penalties/interest because the Certificate of Occupancy (which certifies all inspections were completed) was dated 3/20/08. This is freaking absurd as criteria for credit as defined by IRS was met. No prior home ownership involved. Will pay scheduled $500 w/2010 taxes (to avoid penalty there) & send in balance w/in 30 days w/ appeal to avoid addl penalties/interest. Anyone else having this problem?

  9. Ryan says:

    I’m both sorry and grateful to hear these other stories. I wish everyone fighting and stressing with the IRS over this issue the best of luck.

    I filed my taxes on February 7, and they transmitted on the 15th. I was given an initial date of February 26 for the return…then March 1….then March 8….then March 25th…then April 5….then April 19, and it’s just changed again last week to April 26. I enlisted the help of the “taxpayer’s advocate office” on March 2nd when my return hadn’t processed, and I haven’t seen a thing happen to help. My advocate has yet to answer her phone. She does provide a call to me on dates she determined, but never returns a call after leaving her messages on her voicemail. The IRS agents cannot/will not help or provide any information because it has been turned over to the advocate’s office. These taxes were going to pay mortgage in February when I was just 1 month behind, and now my lender is threatening to take ownership of my home.

    C’mon guys…I paid my taxes every two weeks all year long. It’s past time to get this fixed.

    • Tomeka says:

      Ryan we r in the same situation. We got all of those different dates and they told us the same thing. We also got a tax advocate. She is answering the phone but tells me the same thing the IRS reps tell us. So what was the piont in getting a tax advocate. I spoke to a real nice women last night and she informed me of what someone said in one of the other comments that when the bill was signed they had computer programmers trying to program this into their system and they have been trying to program this into their system since then. SInce they are having all of these problems with this them why not give it to us so that we can put that money back into the economy. They have waited this long and most of our money are going on past due bills now. THey make sure that we pay our taxes but they only get a penalty or they dont have to pay intrest until after June or July 15th the way they are going we are going to have to wait until after that. On top of all that they just took half of my husband pay because he is in the military. How are we going to maintain our bills.

      • Randi says:

        I completely agree w/ both Tomeka and Ryan. We too are in the same boat – constantly given new dates of when we’ll “supposedly” get our federal return. I contacted the Taxpayers Advocates also (just today) and am awaiting to hear from them. I lost my cool on the phone w/ the IRS today and basically said the same thing – they wouldn’t have these system issues if they’d just wipe out the repayment for the tax credit. I realize I signed a paper agreeing to repay the $7500, but if this is that big of an issue across the US (and according to the IRS, this is affecting millions of people right now), then they really should just get off their high horse and have some compassion for the rest of us. We too, were depending on that money to help with bills – now the cost of gas is really hurting us. :(

  10. fayez girgs says:

    my son buying home in 2009 and take first home buyer tax credit$ 8000 he sold the house and losses from the sold how the situation for refundable?

  11. fayez girgs says:

    he buy hom in 2009 and take afirst home buyer tax credit after one year he sold the home we ask about if he must refund the tax credit on 15 year or he will not owe any money

  12. Kate says:

    I too qualified and took the $7500 credit when single. I’m now married, and looking to sell my condo and the problem is where to price for sale?? The realtors are of no help!!! I bought my place for 360k realtor suggest we can go up to 375; if by change I sell for 370 the realtor 5%commission is about $19K. (Condos in my comlex pretty much sell for asking) Then the purchase price would be $370-19k= 351 plus then I still owe the now 7000 remaining…correct?? although I’ll sustain a loss in the latter scenario since the sell price is greater than what I purchased for I still owe remaining $7k?

  13. Ryan says:

    I took the $7500 FTHB credit in 08, this year (2011) i repayed $500 to IRS. I am getting a refund and i thought they would just take it off the top of that. I got my check yesterday and the $500 has been given back to me. I see from some of the other posts this has happened to many people. How long after you got your returns/check did you get a letter from the IRS saying they made a mistake? (id love to know how theyve kept making this same mistake for months)

  14. Chris says:

    I paid the $500 and they never gave it back, you must of never reported it using the proper form then

  15. Ryan says:

    @Chris no i filled out the proper form. Spent an hour on the phone with the IRS yesterday. The error was theirs and they said there should be a notice coming to me about the error and how i can send the $500 back to them.

  16. Lidiette says:

    I’ve read the stipulations of the loan, however I’m still not too sure as to whether I have to own the house for a certain amount of time before I can sell it. I purchased the home in June 2008, so I’m a few weeks shy of 3 years. I’m about to put the house on the market. People have mentioned something about 36 mo. What happens after the 36 mo. mark? Can you not sell it until the 36 mo are up? Is the debt cancelled in you live in it for 36 mo? (Not likely I know!)

    Also, I read you don’t have to pay back the money if you don’t make much money off the sale, do they look at the numbers after the realtor get his commission and all?

    • Anonymous says:

      they don’t care about any realtors… you need to have a loss on the sale. If you purchased for 150k… you need to sell for less than 157,500. You add the 7500 to the sale price. The realtor is up to you to pay. Now consider that most of those that purchased in 2008 now have a loss on the worth of their home. So, you paid 150… now its worth 120. YUK

    • Debra says:

      Hi Lidiette – did you ever get an answer to these questions? I have the same questions & have read all the posts, don’t see an answer

  17. Nelly says:

    Does anyone know if you can pay the remainder balance of this 2008 tax credit ($7500-$500 first payment) $7000 as a payment arrangement after you sell your home? I expect a small profit but not enough to cover the $7000…

  18. bgezon says:

    We received the $7500 credit when purchasing our condo and are now interested in renting. I thought the rules stated we would have to pay back the remainder of the $7500 the year we started renting. A co-worker is doing the same but his accountant said he still pays only $500/yr even though he’s renting. Anyone know the answer to this?

    Thanks!

    • Carrie says:

      Bgezon, did you ever find an answer to this? I have also rented my house, at a loss because I could no longer afford the mortgage. I expected to pay $500/year, but definitely can’t swing the lump sum.

  19. Chris says:

    Face it friends the day’s of making equity in a home are over forever!, unless you can buy real cheap, flip it, only way ever break even, think about all the interest you pay on your mortgage, usually double what you paid, so will your house be worth double in 20-30 yr’s…I doubt it!

    Our parents which bought in the ’50′s -60′s are the only winners

    Top of it we got SCREWED by having to pay it back.

    Everyone in the USA should just get together and stop paying our mortgages all at the same time, see what happens to these greedy banks!

  20. patricia pratt says:

    My husband & I bought a home in 2008 with an assumable va loan. We hope to move in 2012 and have someone assume the loan. We would not make anything off of it and have already purchased a second home. Would the payback transfer to the other home or since the first home was assumed and I made no profit would it be forgiven?

    • JP says:

      Pat,

      You may have to repay. It does not transfer to the other home to my knowledge.

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

      Selling Price – 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 7500 to qualify for no repayment.

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

  21. stand says:

    For all those people who believe that the credit is going to get 6 to 8 weeks forget it
    It took us exactly one year after sending copies of practically all the closing papers on our house
    and after having called many times and sent an endless stacks of paper they just sent us a letter telling us that they had not had time to review our case we reach a point of frustration
    Finally last week we received another letter that approved the credit but that will take 6 to 8 weeks
    So get ready to wait with patience
    good luck

  22. Anonymous says:

    Hey we got our home in 2009, my husband lost his job so wr are faced with having to see….. Is there any grace on paying
    Back the $8 grand if there is job loss involved?

  23. frustated says:

    I bought a house in December 2008 and got the $7500 interest free loan. Then in July 2011 I moved to another state because I couldn’t find a job in my state. On my 2010 taxes, I made my first installment of $500.

    Since then, the IRS has sent me a letter that they want me to pay back the remaining money plus $1500 in penalties and $970 in interest.

    It clearly states on the IRS website “If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. ”

    how can they charge me penalty and interest when I am planning to pay back the remaining $7,000 on my 2011 taxes??????

  24. Ashley says:

    hi,
    I took the $7,500 tax credit when we bought our first home. We began repayment last year. In May 2011 we had to move out of state and decided to rent out our house.
    Do we owe the rest of the $7000 this tax year? Or does moving out of state to keep a job fall under the “special rules for involuntary conversions” the IRS lists on its website?

  25. Denise says:

    Took the $7500 tax credit when we bought it in April 2008. We sold the house at a loss in June 2011, a few months after our divorce. He said he received a letter in the mail during tax season 2010 (in January/February 2011) that showed his half of the loan and how much he owed. I never did receive such a letter. Is there a way to see how much I owe? I have since moved out of state and remarried. I have been worried about this all year, hoping the IRS doesn’t come after me for money that I didn’t even know I owed.


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