Repayment of the First-Time Home Buyer Credit
Many of us have heard about the “low inventory” problem. This problem is not in the high end/luxury market. My theory is that the low inventory problem may be related, in part, to concerns related to the repayment of the First Time Home Buyer Credit, which was utilized by many buyers between 2008 and 2010.
I’ve talked to homeowners that are not selling because they would not have enough equity to purchase another home after repaying the credit.
Before I go any further, here is the link to the IRS’s website page that discusses repayment of the First Time Home Buyer Credit. http://www.irs.gov/taxtopics/tc611.html .
Each person’s tax situation is different. For example if the home owner is/was in the military, different rules may apply. Therefore, it is important to consult with a qualified Certified Public Accountant about your particular situation.
Basically,
If you, the home owner, bought your home in 2008- You are liable for repayment of the credit for a total of 15 years or until you sell your home.
If you bought your home in 2009 or 2010, if you sell your main home to an unrelated person or entity, you repay the credit only up to amount of the gain that you receive. Of course, gain must be calculated per the IRS's rules. Seek qualified help.
Update: Today I went back onto the IRS website and confirmed
"You purchased your home in 2009 or 2010
Generally, you must repay the entire credit for the year you sell the home or it is no longer your main home. There are some exceptions to this rule, however, and you do not need to repay the FTHBC for a home you purchased in 2009 or 2010 if it remains your main home for the three years after the purchase."
There are a few comments below that explain it a little better than I have done here.
Regardless, there are some people that are not selling their homes right now because they purchased would have to repay the credit.
It becomes more complicated.
The chart below is from the IRS website. I’ve highlighted some of the relevant statements.
|
Repayment Triggers |
||
|
IF |
AND |
THEN |
|
You bought a home in 2008 and received the first-time homebuyer credit |
You sell the home to a related party within the next 15 years |
You must repay the full amount of the credit, reduced by any amount of the credit that you previously repaid. You must complete Form 5405 and attach it to your federal tax return for the year you sold the home to report that you sold the home and to repay the unpaid balance of the credit.* This is required whether you had a gain or a loss on the property. |
|
You bought the home in 2009 or 2010 and received the first-time |
You sell the home to a related party within 36 months of buying the home |
You must repay the full amount of the credit. You must complete the Form 5405 and attach it to your federal tax return for the year you sold the home to report that you sold home and to repay the credit*. This is required whether you had a gain or a loss on the property. |
|
You bought your main |
The home is destroyed or condemnedand you do not replace it by rebuilding or buying a new main home within two years of the event |
You must repay the full amount of the credit. You must complete Form 5405 and attach it to your federal tax return for the year of the destruction or condemnation of the home to report the destruction or condemnation. You must also complete another Form 5405 and attach it to your federal tax return for the year in which the two-year period ends to report that you did not replace your main home within the two-year period and to repay the unpaid balance of the credit.* |
|
You bought your home in 2008, 2009 or 2010 |
You convert the home entirely to a business or rental property |
You must repay the full amount of the credit. You must complete Form 5405 and attach it to your federal tax return for the year you convert the home to report that you converted the home and to repay the unpaid balance of the credit.* |
|
|
Due to repayment provisions, the First Time Home Buyer Tax Credit's isn't exactly conducive increasing home inventory levels, conversion of homes to income producing property, or to the transfer to family members.....
Update: Today I went back onto the IRS website and confirmed
"You purchased your home in 2009 or 2010
Generally, you must repay the entire credit for the year you sell the home or it is no longer your main home. There are some exceptions to this rule, however, and you do not need to repay the FTHBC for a home you purchased in 2009 or 2010 if it remains your main home for the three years after the purchase."
There are a few comments below that explain it a little better than I have done here.
Regardless, there are some people that are not selling their homes right now because they purchased would have to repay the credit.
Sincerely,
Sondra Meyer Peterson, CPA
Certified Public Accountant - Texas
Colorado Horse Property Specialist
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