Repaying the First-Time Homebuyer CreditPosted:Dec 7th, 2011 6:24 pm
There were two versions of the first-time homebuyer credit. Before determining what, if any, your requirement is for repaying the credit you need to first determine which version of the credit you received.
The first version of the credit applied to homes purchased from April 9 to December 31, 2008*. It was claimed on the 2008 tax return and essentially was an interest-free loan received in the form of a tax refund of up to a maximum of $7,500.
This version of the "credit/loan" is required to be repaid in 15 equal installments beginning on your 2010 federal individual income tax return. However, if you sell your home before the end of the 15 years, any remaining credit is repaid in the year you sell the home but is limited to the gain on the sale determined after reducing the home's basis by the unrepaid credit. If you sell to a related person, however, this limitation does not apply.
If a sole homeowner dies before the "credit/loan" is repaid, the debt is forgiven including the installment in the year of the death. If the "credit/loan" was claimed on a joint return, the deceased's unpaid portion is forgiven and the surviving spouse is only obligated to repay his or her half of the unpaid balance.
The debt is also discontinued if the home is involuntarily converted during the repayment period and the taxpayer/homeowner acquires a new principal residence within two years of the conversion.
In the case of a divorce in which a home to which the "credit/loan" applied is transferred between spouses, the obligation to repay the "credit/loan" is also transferred. Therefore, the person remaining in the home is obligated to repay the full remaining balance over the installment period.
The repayment installments cannot be offset by the taxpayer's nonrefundable personal credits.
The second version applied to two groups of homebuyers with each group having its own qualifying purchase dates: First-time homebuyers who received the credit up to a maximum credit of $8,000 on homes purchased from January 1, 2009 to September 30, 2010 (if under contract by April 30), and "long-time" homebuyers who received a credit of up to a maximum of $6,500 on homes purchased from November 7, 2009, to September 30, 2010 (if under contract by April 30).
The credits received by these two groups are true credits requiring NO repayment as long as the taxpayer continues to own and live in the home for 36 months from the date of purchase. However, if the taxpayer sells, converts to business or rental use, or loses to foreclosure, the home within the 36 months, the taxpayer must repay the credit (limited to the gain on the property if sold to an unrelated party). If the taxpayer loses the house due to condemnation or destruction withing 36 months and does not acquire another principal residence within two years of the loss, the taxpayer must repay the credit in the year the two-year replacement period ends.
Please note that there are additional exceptions for Servicemembers on qualified extended duty--contact us or go to http://www.irs.gov/ for additional help.