Pay Back the Homebuyer Tax Credit?
Tip It!Did you know that you have to pay back the homebuyer tax credit if you claim it and then sell your house (or otherwise stop using it as your principal residence) within the next three years? I didn’t, but apparently that’s the case. Here’s the scoop straight from the IRS:
Q: When must I pay back the credit for the home I purchased in 2009?
A: Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009. The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence. (source)
Note that there are no exceptions for military personnel who are deployed and sell their home. If they move out during deployment but retain ownership, the deployment “may be” considered a temporary absence such that the home can technically remain their primary residence.
If you find yourself subject to the recapture provision, you are required to repay the credit in full as “additional tax” when you file your Federal income tax return for that year. See IRS Form 5405 for additional details.
Published on November 13th, 2009 - 12 Comments
Filed under: Real Estate, Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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November 13th, 2009 at 4:39 pm
Ya, I read that about the tax credit before i started looking at houses. I was on the fence for a while on whether or not I wanted to commit myself to my current hometown for 3 years minimum. in the end I decided that It shouldn’t be a major problem to stay here at least that long. If there is something enough better to justify paying it back in order to move then I will have to cross that one when I get to it.
November 13th, 2009 at 6:04 pm
DH are in this boat. He is military and it is very probable that we’ll have to move before 3 years. So we’re planning on stashing the 8K in our savings account until we are here for 3 years or they change the rules, particularly regarding military personnel.
November 14th, 2009 at 10:33 am
I didn’t know that either… I’m not in the scenario where I could take advantage of the tax credit anyway though.
The tax credit was rushed in, and they probably didn’t think thru all of the ramifications.
Thanks for bringing this to light!
November 14th, 2009 at 11:21 am
There has been a long-standing provision like this on capital gains. You have to live in your house at least two years to avoid tax on the gain when you resell.
November 14th, 2009 at 11:25 am
Thanks for pointing that out. it’s not a device to use for “flipping a property”.
John DeFlumeri Jr
November 15th, 2009 at 6:09 am
Pretty clearly Congress intended to forestall speculators from buying and flipping houses on the taxpayer dime. It would have helped, though, if they’d made some provision for people in the military.
November 15th, 2009 at 6:44 pm
I think this is a totally reasonable clause. The last thing that we should encourage is people using this to buy a house and then sell it again. I can’t imagine in this market though that anyone would be able to recover their investment in less than 36 months unless they were buying a foreclosure property at a firesale price.
There are always going to be legitimate reasons why someone might have to sell their house (like military or job move) but better to reduce the fraud that would occur in 98% of cases than worry about every possible nuance that affects the 2%. If people are worried about that, they shouldn’t buy the house.
As it is, this is a gift to anyone that waited to buy a house, but its only going to pull sales forward and make us feel a little better till its over.
At some point, paying the 12 trillion tab for all of these wonderful programs in the last 30 years will become a reality.
March 6th, 2010 at 12:15 pm
I just learned this after going gong ho into looking at residences. Needless to say I am not gong ho on buying a residence now; I might move within 3 years. So silly provision. Wont stimulate anything. Whats wrong with speculation in this environment too? We should be doing everything and anything to encourage investment right now; I dont like the way we are going.
March 11th, 2010 at 10:03 am
I have been considering buying a home, however, within a year and a half I will have to move in order to go to school. If I dont sell the residence or buy a new home, but instead rent out the house and rent an apartment for my self for the time I am gone, do I still have to pay back the tax credit?
July 27th, 2010 at 4:55 pm
Thats not true, read line 12: “I (or my spouse if married) am a member of the uniformed services or Foreign Service, or an employee of the
intelligence community. I sold the home, or it ceased to be my main home, in connection with Government orders for
qualified official extended duty service. No repayment of the credit is required (see instructions). Stop here.”
If you get deployed you don’t have to pay it back. Read the form.
August 3rd, 2010 at 4:36 pm
What if we sell our home earlier than 36 months from original purchase date after getting the 8000 tax credit? CLosing was 03-15-2009….we may try to sell late this year OR after the 2 year mark. Is there a different pay back if we sell b4 or after the 2 year anniversary
November 15th, 2010 at 11:03 pm
Quoted from IRS.com
“In many cases, the credit repayment (recapture) requirement is waived for members of the uniformed services, members of the Foreign Service and employees of the intelligence community. This relief applies where a home is sold or stops being the taxpayer’s principal residence after Dec. 31, 2008, in connection with government orders received by the individual (or the individual’s spouse) for qualified official extended duty service. The credit is still allowable even if this happens during the year of purchase. Qualified official extended duty is any period of extended duty while serving at a place of duty at least 50 miles away from the taxpayer’s principal residence (whether inside or outside the U.S.) or while residing under government orders in government quarters. Extended duty is defined as any period of duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.”