Pay Back the Homebuyer Tax Credit?

Written by Nickel - 7 Comments

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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 - 7 Comments
Filed under: Real Estate, Taxes
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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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Comments (scroll down to add your own):

  1. 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.

    Comment by John — Nov 13th 2009 @ 4:39 pm

  2. 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.

    Comment by Katy — Nov 13th 2009 @ 6:04 pm

  3. 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!

    Comment by Don@Moneyreasons.com — Nov 14th 2009 @ 10:33 am

  4. 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.

    Comment by geo — Nov 14th 2009 @ 11:21 am

  5. Thanks for pointing that out. it’s not a device to use for “flipping a property”.

    John DeFlumeri Jr

    Comment by John DeFlumeri Jr — Nov 14th 2009 @ 11:25 am

  6. 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.

    Comment by Funny about Momey — Nov 15th 2009 @ 6:09 am

  7. 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.

    Comment by SoCal104 — Nov 15th 2009 @ 6:44 pm

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