by Bryan Miller, Tax Analyst
Taxpayers who took advantage of the IRS First Time Homebuyer Credit between April 8th, 2008 and May 1st, 2010 are not all the same. The credit aided individuals and couples who purchased a first home as a primary residence, and was initially meant as temporary stimulus for the economy. As time progressed, the credit changed and was treated very differently in tax years 2009 and 2010. Unfortunately, these subsequent changes did not grandfather in those taxpayers that took the credit in 2008 as many surprised taxpayers may find this year; however, for those who purchased a home in 2008 and have not taken the credit, you still have options. The breakdown is as follows:
Those who purchased a home between April 8th and December 31st, 2008 and took the credit on their 2008 tax return had the stipulation of a 15-year payback requirement beginning this year on the 2010 tax return. In essence, the credit took the form of an interest-free loan in the amount of $7,500.00. Beginning on the 2010 return, adding an additional tax of $500 to each return using Form 5405 for 15 years will pay the credit back until 2025.
For homes purchased and closed between January 1st 2009 and November 7th 2009, the credit increased to a maximum of $8,000.00 and did not need to be repaid. This version of the credit only applied to new homeowners who had not owned a home in the prior three years. After November 7th 2009 and through May 1st 2010, the credit included both the $8,000.00 as applied to 2009 buyers, as well as a new version to include long-time residents (current homeowners as opposed to homebuyers) up to a maximum of $6,500.00. This variation did not have to be repaid either.
Note: The 2009 and 2010 credits had a conditional versus mandatory repayment mandate. The credits would have to be repaid if the qualifications of the program changed. The home had to be a first time purchase, as defined above, and resided in (not sold) by the buyer for the next three years.
Fortunately, if you are a 2008 homebuyer and candidate for the credit, yet have not claimed the credit, you may amend your return to claim the credit using Form 1040X with the December 2009 or 2010 Form 5405. Certain additional documentation may be required when filing a claim for the credit with your 2009 or 2010 return or amended return.
There are exceptions to the 2008 repayment rule. Exceptions may apply to individuals who claimed the credit in 2008 and are now deceased, those who sold the home without realizing a gain to a non-related party (including foreclosure), or those whose home was condemned or destroyed. Also, if a spouse dies after claiming the credit on a joint return in 2008, the obligation becomes only 50%, or $250.00 per year for 15 years, for the surviving spouse. See First-Time Homebuyer Credit Questions and Answers: Claiming the Credit on Your Tax Return or First-Time Homebuyer Credit questions and Answers: Basic Information for further details.