If you bought a house in 2008 and claimed the first time home buyer credit in the 2009 calendar year, you’re going to love this bit of news. Starting with the 2010 tax year, some one million new homeowners who claimed the 2008 tax credit will have to start paying it back.
The Housing and Economic Recovery Act (HERA) of 2008 established the tax credit as a way to deal with the rapidly growing inventory of unsold residential homes and falling home prices. How the credit worked is that new home buyers who purchased their homes between April 8, 2008 and June 30, 2009 were entitled to a tax credit equal to 10% of the purchase price of the home, capping out $7500.
The catch is that the HERA tax credit credit was merely a zero interest loan with the first payment installment due two years after the tax credit year. If you claim the credit the for the 2008 tax year, the first installment starts in the 2010 tax year. According to Treasury Inspector General for the Tax Administration (read the full statement at www.tigta.gov), repayment of the 2008 homeowners tax credit can be made in 15 equal installments. For those homeowners who claimed the whole $7500, this comes to $500 a year which is due as an additional tax on your federal tax return.
Not everyone will have to pay back the 2008 homeowner’s tax credit however.
* If the original tax payer is now deceased, the heirs won’t be required to pay back the credit.
* If you transferred the ownership of the house to a divorced spouse as part of the settlement, then responsibility of repayment on the credit goes to the spouse.
*If you either lost the house through foreclosure or sold it with no gain, you also could be exempt.
For more details concerning your particular situation and if you’ll be required to pay back the 2008 credit, visit a tax professional, your accountant, or check the IRS FAQ sheet at www.irs.gov for Tax Credit Repayment Form 5405 and the Home Credit FAQ sheet.