Homebuyer Tax Credit Bills Coming Due in 2011
That's right: Only first-time homebuyers who used the tax credit in 2008 have to start repaying their tax credits. You'll have to repay the money over a 15-year payment when you file your tax returns starting with your 2010 return and continuing until 2024.
How do you figure out how much to pay? It's a rather simple formula: Divide the amount of the tax credit you claimed by 15 and add that amount to your tax bill. For example, if you claimed a $7,500 tax credit divide that by 15 and you get $500. That's how much you'll need to pay each year. You'll need to file Form 5405, "First-Time Homebuyer Credit and Repayment of the Credit," each year you repay the money.
You may be wondering if there is any way to get around this repayment. There are some exceptions to the rules. You may not have to repay the full credit if:
• If you transfer your home as part of a divorce settlement, your former spouse who keeps the
• If your home is destroyed, condemned or disposed of under threat of condemnation and you purchase a replacement home within two years, you continue to repay the credit in installments each year.
• If you lose your home in a foreclosure sale, you repay the credit only up to the amount of the gain.
• If you die, no further repayments are due. If you claimed the credit on a joint return, your surviving spouse pays only his or her half of the remaining credit repayment amount.
• If you sell your main home to an unrelated person or entity, you repay the credit only up to the amount of gain, if any, on the sale.
If you got the homebuyer tax credit and sell your home, you may need to repay it even if you claimed the tax credit in 2009 and 2010. If you claimed the credit in 2009 or 2010, you're only on the hook for possible repayment if the home you purchased stops being your primary residence or main home during the first 36 months that you own that home. Your home stops being your main home when:
• You sell the home.
• You transfer the home to a spouse or former spouse in a divorce settlement.
• Your home is destroyed, condemned or disposed of under threat of condemnation and you do not purchase or rebuild a replacement home within two years.
• You convert the entire home to a rental or business property.
• You converted the home to a vacation or second home.
• You no longer live in the home for the greater number of nights in a year.
• You lose your home in foreclosure.
• You die.
There are certain exceptions, but generally, if the home is no longer your main home. you must repay the entire remaining part of the credit on your next tax return. The IRS calls this "acceleration of recapture."
If you took advantage of the homebuyer tax credit in 2008, 2009 or 2010, you can expect a letter from the IRS explaining your obligations. Remember to discuss your tax options with your tax adviser before your file your taxes in 2011.
Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score and The Complete Idiot's Guide to Personal Bankruptcy.
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