Adam and Eve had it made. They lived in the Garden of Eden free and life was perfect. However, there was a serpent, a snake, and the snake could not stand that Adam and Eve were so happy.
We all know how that story turned out and just as Eve is about to bite into the apple we all find ourselves saying… “DON’T DO IT!”.
Now here comes another snake… a different snake… but a snake nonetheless. This time the snake is our benevolent and all-caring Federal Government. This time the forbidden fruit is the First Time Home Buyer’s Credit.
The purpose of the credit was to reinvigorate the housing market and bring a whole new generation of homeowners into the market. But like the snake in the Garden the government lied.
The First Time Homebuyers Credit is not a credit, it is a loan that has to be paid back (Only for homes purchased in 2008). The fine print discloses that in the year after the taxpayer utilizes the First Time Homebuyer’s Credit they must start paying back the credit. One fifteenth ($500 per year) of the $7,500 must be paid for the next 15 years. This payback requirement does not apply to homes bought in 2009 or 2010.
If a homeowner moves in the first three years after taking the credit, they are required to pay the $7,500 credit back (this applies to homes purchased in 2008 ). So, moving too soon can create a multitude of problems.
If a homeowner’s employer requires them to move or lose their job, they will have to pay back the credit on that year’s tax return. It gets worse if the homeowner cannot pay back the credit the IRS will begin charging interest on the outstanding balance until the entire credit is paid back.
In addition, if taxpayer moves and cannot pay back the credit immediately the homeowner could be hit with another penalty for failure to pay their taxes. This penalty is on top of the interest the IRS is already charging. Finally, if homeowner cannot pay back the credit and the interest in a relatively short time, the IRS will charge interest on the unpaid credit and the failure to file penalty.
The time for the First Time Homebuyer’s Credit is past. How big of a problem this will become is anyone’s guess. If you took advantage the Credit then consult with a CPA or tax attorney if you plan moving from your primary residence
Next time a snake offers you a bite of an apple… “DON’T DO IT!.”
However, some exceptions apply to the repayment rule. From http://www.IRS.gov Homeownership and Business Assistance Act and the American Recovery and Reinvestment Act
- If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.
- If you stop using the home as your main home, all remaining annual installments become due on the return for the year that happens. This includes situations where the main home becomes a vacation home or is converted to business or rental property. There are special rules for involuntary conversions. Taxpayers are urged to consult a professional to determine the tax consequences of an involuntary conversion.
- If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.
- If you transfer your home to your spouse, or, as part of a divorce settlement, to your former spouse, that person is responsible for making all subsequent installment payments.