Hopefully you remember this a few years ago when the government offered a stimulus as a result of the Real Estate Crash that started around 2006; in 2008 the federal government offered a $7,500 credit for first time home buyers, then changed it to $8K. If you indeed qualified for the $8,000 first time home buyer credit for homes bought from January 1 through November 30, 2009, then you don’t have to worry about paying it back, provided you used the house as your principal residence for at least 36 months after buying — but if you sold it sooner than that, IRS could be looking for you.
Sell it or stop using it as your principal residence within 36 months, however, and you’ll have to repay the entire amount of the credit as additional tax when you file your next tax return (although there are a few exceptions).
Before passing the $8,000 credit in the stimulus package, Congress had already enacted a $7,500 first time buyer credit as part of the Housing and Economic Recovery Act of 2008. This $7,500 credit, which was designed to apply to houses bought by qualifying first time buyers between April 9, 2008 and July 1, 2009, is actually an interest-free loan that must be repaid.
So if that’s the credit you actually got, then you must pay it back over 15 years through an additional tax starting with your 2010 tax return (although here too there are exceptions). Ask you CPA.
So the first thing you need to do is find out which tax credit you actually received. If you bought your house in 2008, then you got the $7,500 tax credit, and you will have to repay it. Sorry, but you can’t get the $8,000 credit if you bought in 2008.
You could, however, be part of what is likely a small group of first timers who bought their home early in 2009 before Congress enacted the $8,000 credit and who took the $7,500 credit. Someone might have done that because he filed his 2008 taxes before the $8,000 became available in 2009 or because he just didn’t know about the larger credit or perhaps just mistakenly believed that once he filed for the smaller credit he no longer could get the larger one.
But if you, or any other qualifying first time buyer, bought a home in 2009 and received the $7,500 credit instead of the $8,000 one for whatever reason, you’re not stuck with the smaller amount. You can file an amended return for 2008, claim the $8,000 credit and get the extra $500.
So to sum up, whether or not you’ll have to repay the credit depends on which credit you got and how long you live in the home.
For a referral of a qualified CPA versed in this law, call me. Otherwise, for the people undecided what to do with their property and your upside down, or if you know of someone, there are other laws you need to be aware, Call Me ASAP for the most up-to-date info. Thanks for reading! Have an Outstanding Day!!