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Understanding the First Time Homebuyer Tax Credits
Posted By Miranda Marquit On 02/22/2011 @ 12:44 pm In Taxes | 17 Comments
The housing market crash resulted in the government’s decision to try and stimulate homebuying with tax credits. However, it is important to note that, because there were different tax credits being offered, you may have to pay back your tax credit. If you bought a home in 2008, taking advantage of the first time homebuyer tax credit, you are in the group of people who has to repay the tax credit. This is because the tax credit wasn’t a true credit at all; it is a 15-year interest-free loan. If you took advantage of the tax credit, you have to start repaying it with your 2010 taxes — which means the taxes you are in the process of preparing right now.
With this post, we hope to explain which tax credits need to repaid and which ones don’t.
If you bought your first home between April 8, 2008 and December 31, 2008, and you decided to make use of the tax credit, it’s time to start paying it back. This credit amounted to $7,500 or 10% of the price of the home, whichever was smaller. If you repay the full $7,500  over the course of 15 years, that means you will pay $500 a year.
When filing, you will need attach the 2010 revised version of Form 5405 . Fill out the form, and make sure it accompanies your tax return. This will ensure that everything is in order as you begin to repay your first time homebuyer tax credit. The IRS does offer some guidelines for tax credit repayment.
As you know, the homebuyer tax credit  got better for homes purchased in 2009 and early 2010. These tax credits were offered to existing homeowners making a new purchase of a primary residence, as well as to first time homebuyers. For those who bought between January 1, 2009 and April 30, 2010 (settlement date  September 30, 2010), the tax credit is a true credit — no repayment required. However, if you have already moved out of the home you bought in 2009 or early 2010, you may have to repay the homebuyer tax credit.
One of the requirements of getting the newer version of the homebuyer tax credit is that you have to maintain the home as a primary residence for 36 months. So if you move out — even if you still own the property — you have to repay the credit. Additionally, if you sell the home you have to pay back the credit. You only have to repay up to the home’s gain, though, so you may not have to repay the entire credit. There are some exceptions to the requirement to repay the credit immediately on your next tax return:
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 repay the full $7,500: http://www.irs.gov/newsroom/article/0,,id=186831,00.html
 Form 5405: http://www.irs.gov/pub/irs-pdf/f5405.pdf
 homebuyer tax credit: http://www.bargaineering.com/articles/8000-first-time-homebuyers-credit.html
 settlement date: http://www.bargaineering.com/articles/3-month-homebuyer-tax-credit-extension.html
Thank you for reading!