All of the taxpayers who purchased a home in 2008 to earn the $7,500 First-TimeHomebuyers Credit, now realize the credit was a loan in sheep’s clothing. It soon will be time to submit to the first of your fifteen fleecings.
When you file your return for 2010, the first of your fifteen $500 installments will become due and reportable on the return. For fourteen years thereafter you will forward an additional payment in this amount to the IRS until the balance is paid in full. So much for the loan disguised as a credit.
Well it could be worse. If you decide to sell or stop using the home as your primary residence, the remaining balance is accelerated – that’s right, due in full. Don’t be confused by the “new” rule on the modified credit program that permitted you to avoid repayment if you remained in the home for 36 months after purchase.
Ironic that by postponing the 2008 purchase just a few months would have avoided the repayment hassle entirely after you lived there for 36 months. Additionally, given the lousy housing environment, prices were falling the entire time and you could probably have made a later purchase, and paid less. It’s unlikely that Congress is anxious to fix the inequity and pass legislation that would eliminate payment of the $7,500.
There are several things to remember about this credit. If you use a paid preparer for your returns, remind him/her of this credit. This is even more important if you go to a new preparer in 2011 that is unaware of your home purchase in 2008. Also, this liability does not appear on a title search, so if you were to buy another house and use all of the funds as a down payment, the balance due on the credit is accelerated and due in full.
Handle this very carefully or it could come back to bite you – hard.
Tax Wisdom – The difference between tax avoidance and tax evasion is the thickness of a prison wall.
– Denis Healey