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Homebuyer Tax Credit 2008 - How The Payback Provision Works

By Kent Simpson

Real Estate Agent with Realty One Group Mountain Desert AZDRE# SA582422000

August 14, 2008 02:03 PM

Ever since I heard about the $7500 tax credit actually being an interest-free loan that had to be paid back in 15 years--finding out how the payback works has been a serious challenge!

Light bulb over head Perhaps I've been looking in the wrong places, but FINALLY I found some answers on how this is going to work:

2 years after the credit is taken, you pay it back $500 per year.
If you sell the home before the credit is paid back, the entire amount is due upon closing.

What's the benefit of a credit if you have to pay it back anyway? Simple--money today is worth more than money you pay back tomorrow. Money loses its purchasing power over time due to inflation (the Time-Value principle of economics).

scractching chin, wondering I am still curious about the method of repayment though--will people send a check to the government or will it be a charge added to their tax bill?

*Update* The method of repayment is $500/year via your federal taxes. EX: if you are going to get a $700 refund, the government will keep $500 of it. If you owe $1000, you will now owe $1500. However, these provisions are going to be under debate and subject to change with the change of administration in 2009.

Kent Simpson REALTOR®, e-Certified®, AHS® (with The Pepper Group™ Diversified Real Estate): Real Estate Agent in Tucson, Pima County, Arizona

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Bill Dunn

Elite Realty Group - Paducah, KY

I like the info in this post. I'll be watching to see the responses you get.

Aug 14, 2008 02:08 PM

Kent Simpson

Realty One Group Mountain Desert - Tucson, AZ

Real Estate Is About People

Thanks Bill - I'm interested in the info the comments will generate, too!

Aug 14, 2008 02:10 PM

Robert Huntsinger

Empire Realty - Upland, CA

Empire Realty Upland, CA - Full Service at a Discount

Kent,

I like you are interested in the fine print, I don't know if I like the payback part, it is help but not a hand out.

Take care!

RJH

Aug 14, 2008 02:13 PM

Debbie Summers

Charles Rutenberg Realty - New Smyrna Beach, FL

I've also been looking for the details... Thanks for the update!

Aug 14, 2008 02:20 PM

Mike Brown

On the Move REALTORS, Inc. - Louisville, KY

Getting the Results You Deserve!

It actually has been very confusing here in Louisville regarding the tax credit (I mean interest free loan). Senator John Yarmuth even went so far as having a press conference here in Lou to explain it to the general public.

Anyway, from what I know I believe that the payback happens beginning after the 2nd year and your payment will come from your tax returns. Of course, if you sell, all of it becomes due at closing.

Thanks for the great post!

Aug 14, 2008 03:08 PM

RJH - "The devil is in the details...which is usually written in fine print!" Thanks for commenting.

Debbie - I hope this is helpful.

Mike - Being able to pay it via the tax return would be the simplest, most efficient method for consumers...but we ARE talking about a government program here....

Aug 15, 2008 03:18 AM

Richard Baggett

AFI Mortgage - Lake Charles, LA

ok so who knows the details?

Aug 15, 2008 03:40 AM

Chuck Willman

Chuck Willman - Alpine, UT

NewHouseUtah.com

Kent- It's a somewhat goofy provision but it's better than nothing. Zero percent interest on anything that has a time value is still a "much better than nothing" deal.

Aug 15, 2008 08:05 AM

Richard - I think the details are in "trickle" mode

Chuck - I like your "better than nothing" read on this

Aug 15, 2008 11:16 AM

Brian Bordeaux

SB Mortgage Group, Inc. - Auburn, MA

Hi All,

From what I have read, the borrower must repay the credit yearly on their Federal Tax return. This would amount to $500 per year for 15 years.

Aug 16, 2008 06:45 AM

Thanks for confirming, Brian!

Aug 16, 2008 03:43 PM

Dee Dee

White Plains, NY

NY,NJ, CT Home Loan Expert

The method of repayment depends on whether the buyer is entitled for a tax refund for that year, for example: If the buyer is entitled for a tax refund of $3500 and he/she received a credit of $7500, then the NET REFUND will be $3000 (the $500 will be deducted by the IRS). If the buyer owes money to IRS, then they will have to send a check for the $500 and pay it back.

Additional information is available at the website www.federalhousingtaxcredit.com created by NAHB (national association of Home Builders), I am reposting the answer to the payback question from their FAQ's

Does the credit have to be paid back to the government? If so, what are the payback provisions?
Yes, the tax credit must be repaid. Home buyers will be required to repay the credit to the government, without interest, over 15 years or when they sell the house, if there is sufficient capital gain from the sale. For example, a home buyer claiming a $7,500 credit would repay the credit at $500 per year. The home owner does not have to begin making repayments on the credit until two years after the credit is claimed. So if the tax credit is claimed on the 2008 tax return, a $500 payment is not due until the 2010 tax return is filed. If the home owner sold the home, then the remaining credit amount would be due from the profit on the home sale. If there was insufficient profit, then the remaining credit payback would be forgiven.

Aug 19, 2008 06:19 AM

Dee - thanks for the additional clarification!

Aug 20, 2008 11:49 AM

Homebuyer Tax Credit 2008 - How The Payback Provision Works

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