Did You Repay Your First-Time Homebuyer Credit (Loan) To The IRS?

Did you take the first-time homebuyer credit on your 2010 tax return?

You remember the IRS “credit” that was suppose to reward first-time homebuyers by putting some cash back in their pockets?  Let’s refresh your memory.

Under the Housing and Economic Recovery Act, certain homeowners were eligible for a tax credit equal to 10 percent of the purchase price of a home, up to a maximum of $7,500. Married individuals filing separately could get a $3,750 credit. Unmarried people who jointly purchased a home were allowed to divide the credit.

Well, we’ve got good real estate news and bad news.

The good news is that the credit did encourage a lot of “on the fence” homebuyers to take advantage of the lower housing prices and make a home purchase. The bad news is that IRS credit wasn’t really a credit at all, it was a loan.

So if you already mailed off your tax return and failed to include your first payment on that loan, you may want to file an amendment.   The IRS requires those homebuyers to repay the first-time homebuyer credit (loan) over a period of 15 years in equal installments.

And what happens if you sell your home before the 15 years is up?  You will need to repay the entire first-time homebuyer credit (loan) immediately, in full. That means that if a homeowner took advantage of the full $7,500 credit (loan) and they sold their property a year or two after their purchase, they could be facing a very large tax bill.