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Remember back in 2008/2009 when the federal government was trying to stimulate the housing market by handing out an income tax credit to first-time homebuyers? As you may recall, these “credits” came in two flavors. The first was essentially an interest-free loan worth up to $7500 that ultimately had to be paid back – nice credit, huh? Shortly thereafter, the homebuyer tax credit was bumped up to $8000 and the repayment requirement was dropped.
Well, guess what? If you took advantage of the original $7500 version of the first-time homebuyer tax credit, it’s time to start paying it back. Repayment is to be made in 15 equal annual installments starting with your 2010 income taxes. To make the payment, you’ll need to file IRS Form 5405 – coincidentally, this was the same form you used to claim the credit in the first place.
If you’re affected by this, you’ve probably already received “Notice CPO3a, Repaying your First-Time Homebuyer Credit,” listing the amount you have to re-pay. If you haven’t gotten this, or if you’ve misplaced it, then simply divide the total amount of your credit (you can look it up on your old tax return – you kept a copy, didn’t you?) and divide by 15. For those that qualified for the full credit, that works out to a repayment of $500/year.
Note that the 15 year “recapture period” only applies if the home you purchased continues to serve as your main home. If you convert your to a rental property or a second/vacation home, then you’ll need to pay the full unpaid amount on your next tax return. And if you sell your home to a third party, you have to repay the amount of the credit only up to the amount of the gain on your sale.
Other exceptions include the following:
- If you transfer your home as part of a divorce settlement, the spouse that keeps the home is responsible for the remaining repayments.
- If your home is destroyed or condemned and you purchase a replacement within two years, you’ll need to continue making repayments going forward.
- If you lose your home in a foreclosure sale, you’ll need to repay the credit up to the amount of your gain, if any.
- If you die, no further payments are due.
I’m not sure about you, but we bought our home back before the homebuyer credit was introduced, so this doesn’t apply to us. If it applies to you, be sure to be familiar with all of the repayment details – especially the possibility of having to make a lump sum repayment if you sell your home.
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