If you joined the federally subsidized fun back in 2008 and pocketed a tax credit for buying your first home, it’s time to pay the piper. Again.
Buyers who used the credit in 2008 – unlike those who used it in later years – must repay it in 15 installments. The latest of these will be due this year at tax time. The installment payment goes on your 1040 Form, Line 59b.
The credits, which ran up to $7,500 in 2008 then increased to $8,000 in later years, helped to slow the decline in the nation’s plunging housing market. At least, as long as they lasted. Most homebuyers lost eligibility for the plan in September 2010, except for some members of the uniformed military service, some members of the Foreign Service and some employees of the intelligence community, who can still claim the credit for homes purchased in the U.S. in 2011 as long as they would have been otherwise eligible for the program in the earlier years (see ref. 1). If you fall into that category, you’ll need to gather some key pieces of documentation to collect the credit, which the IRS outlines in its First-Time Homebuyers Questions and Answers page.
Altogether, the IRS issued $26 billion in tax credits in 2009 and 2010 to first-time homebuyers, who were defined as anyone who had not owned a home in the previous three years, according to the office of the Treasury Inspector General for Tax Administration (Ref. 3, page 2).
If you used the credit in 2008, you will have to repay the unpaid portion in full if you sell within 15 years, although the repayment amount might be reduced if there’s a loss on the sale. If you used the credit in later years, you will have to repay it if you sell the house or stop using it as your main residence within three years, or if the house is destroyed or condemned and not rebuilt within two years of its demise. Use Form 5405 to report a repayment (Ref 4).
- Internal Revenue Service: First-Time Homebuyer Credit Questions and Answers
- Internal Revenue Service: First-Time Homebuyer Credit
- Treasury Inspector General for Tax Administration: Administration of the First-Time Homebuyer Credit Indicates a Need for Improved Controls Over Refundable Credits
- HSH.com: Impact of the First-Time Homebuyer Credit Still Being Felt
- Internal Revenue Service: Form 5405