Repaying the First-Time Homebuyer Credit
Over the last several years, many people have taken advantage of one of the first-time homebuyer credits, which were available for certain home purchases made in 2008, 2009 and 2010. Now some of those homebuyers are finding that they must pay part or all of their credit back. Unfortunately, the rules for repayment of the first-time homebuyer credits are somewhat confusing. Today, I’ll discuss the two different first-time homebuyer credits and the repayment rules for each.
Credit 1: Received for home purchases made in 2008
The first-time homebuyer credit available in 2008 was $7500. The entire $7500 must be paid back (recaptured) over 15 years, beginning in 2010. That means if you took the credit in 2008, you should have started recapturing the credit on your last tax return.
You have a 15-year period to recapture the credit only if the home purchased remains your primary residence. If you sell the home, rent it out, or stop using it as your primary residence, you must pay back any previously un-recaptured credit that tax year.
There are some exceptions to this immediate payback rule. If you divorce and the other spouse continues to use the home as his/her primary residence, he/she will continue to repay the credit over the 15-year period. If you die, no further repayment of the credit is due. And if your gain on the sale or foreclosure is less than the amount of un-recaptured credit, you must only pay back the amount of your gain. (See the flowchart for the formula to figure your gain.)
Credit 2: Received for home purchases made in 2009 & 2010
The first-time homebuyer credit available in 2009 & 2010 was $8000. The credit does not need to be paid back (recaptured) unless the home ceases to be your principal residence within 36 months of the purchase date. If you sell the home, rent it out, or stop using it as your primary residence within 36 months of purchase, you must pay back the entire credit that tax year.
The same exceptions apply to this payback. If you divorce and the other spouse continues to use the home as his/her primary residence until the 36 months is up, no repayment is necessary. If you die, no further repayment of the credit is due. And if your gain on the sale or foreclosure is less than the amount of the original credit, you must only pay back the amount of your gain. (See the flowchart for the formula to figure your gain.)
Click the following link to download the flow chart.
First-Time Homebuyer Credit Flow Chart.pdf
Megan Stanton
Megan Stanton has been with Hanna, Holdredge & Associates since 2007. Her past life as a teacher makes her uniquely qualified to help our clients use Quickbooks. She also posts a weekly Quickbooks Tip on the company Facebook page at www.facebook.com/lovelandCPAs.
