In 2009 and 2010, the Internal Revenue Service (IRS) approved a tax credit worth up to $8,000 just for purchasing a new home. Confusion exists regarding this credit, however, because some people have to pay it back to the IRS, while others do not. Whether you owe the IRS for taking this credit depends on when you purchased your home.
Congress changed the rules on the home buyer tax credit in 2009. The Housing and Economic Recovery Act of 2008 authorized a tax credit that was actually a loan, so people who claimed this credit in 2008 have to repay it -- worth up to $7,500 -- in installments over the next 15 years. Taxpayers do not have to reimburse the IRS for taking the credit in 2009 and 2010.
You must pay back the 2009 or 2010 tax credit if, during the following three years, you sell the dwelling or cease to use it as your primary residence. If this occurs, you must pay back the credit in full when you file your next tax return.
If you did sell your home or leave it within three years of taking the homebuyer credit, the IRS has a few exceptions regarding paying back the credit. You do not need to reimburse the IRS if you sold the home for no profit. People who sold their homes due to a government order in connection with extended service in the military are also exempt from repaying the credit. If you transfer the home to your ex-spouse because of a divorce proceeding, any duty to repay the credit goes to him.
Exceptions to Repaying the 2008 Credit
The IRS allows an exception for the repayment of the 2008 credit when the home buyer dies and did not file a joint tax return. If you sell your home, any remaining payback installment payments are limited to the profits on sale, unless you sell the home to someone related to you. Alternatively, if you lose money on the transaction, you could have no obligation for repayment or a reduced payment. Also, the IRS might allow an exception if your house is condemned.
- A young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com