Last week I read a blog by Deborah "The Bzy-Bee" Byron-Leffler and was inspired to research this topic a little further. This topic can be very relevant in the next few years since the tax credit expired April 30, 2010 with settlements up until September 30, 2010. There are cases where repayment of the tax credit would not be required. But buyers should be cautioned to talk to an accountant prior to making any move.
Thanks for sparking my interest Deborah!
Q. I purchased a home in 2009 and received the $8,000 First Time Home Buyer Tax Credit. I am relocating with my job and I am not sure what I want to do with the house. Would I owe any money back to the government?
A. Probably, but it depends. The intent of the tax credit was that buyers would make the home their primary residence for at least three years. It was designed to help the housing industry by getting some of the inventory off the market and encourage home ownership.
If you no longer maintain the home as a principal residence during the 36 month period AFTER buying it (the settlement date is considered the date of purchase), you may owe all or part of the tax credit you received from the government. IRS Form 5405 details the calculation of the tax credit depending upon your situation. From the IRS Rules:
You owe the FULL amount of your tax credit IF:
You sell your main home to a related person or entity.
Your home is destroyed, condemned or disposed of under threat of condemnation and you do not purchase or rebuild a replacement home within two years.
You convert the entire home to a rental or business property.
You convert the home to a vacation or second home.
You no longer live in the home for the greater number of nights in a year.
You may owe a FULL or PARTIAL amount of your tax credit IF:
You sell your main home to a non-related person or entity. You repay the amount of the credit up to the amount of your capital gain. Note: When calculating the gain or loss on your main home if you received the first-time homebuyer credit, you reduce your basis by the amount of the credit.
You lose your home in a foreclosure. You must repay the credit only up to the amount of gain (typically anyone who loses a house in foreclosure does not realize a gain; therefore, in most cases no repayment of the tax credit who be required).
In the case of DIVORCE, the spouse who keeps the home as part of the divorce decree would only have to repay the tax credit if he/she moves after the divorce but still within the 36 month time period following the rules above. The spouse who transferred the property during the divorce does not have to repay the credit. If the house is sold as part of the divorce, then the couple must follow the rules above.
In the case of DEATH, if the taxpayer who received the tax credit dies, the estate is not required to repay the tax credit.
Repayment of the tax credit is due when the tax returns are due for the calendar year in which the home ceased being your primary residence. We would encourage you to talk to your accountant before simply moving out. What you do and when you do it could cost you money that you don’t have.
~Lisa
Contact Scott Loper, Associate Broker, Realtor®, RE/MAX Realty Group at 215-513-1333 for help buying or selling a home in Lansdale, Harleysville, Hatfield, Souderton, Skippack, Collegeville, North Wales and the surrounding areas of Montgomery County of Pennsylvania. To Search for Homes For Sale in Montgomery County Click Here.
I Owe What? Tax Credit Paybacks - Important Considerations for First Time Buyers Who Took Advantage of the $8,000 Federal Tax Credit - Copyright © 2011, The Scott Loper Team, All rights reserved.
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The Scott Loper Team
Scott Loper - Associate Broker
Lisa Loper - Sales Associate
Gina Wherry - Sales Associate
RE/MAX Realty Group
439 Main Street
Harleysville, PA 19438
Ph: 215-256-1200 x-213
