Repaying the first Time Homebuyer Credit

The First-Time Homebuyer Tax Credit is a refundable credit that is available to certain individuals who purchased a home before May 1, 2010 to be used as their principal residence.  There are few different varieties of the credit, but basically it is a credit that is available on the purchase of your home if you have not owned a home in the prior 3 years.  However, there is an additional modified credit available for existing homeowners as well.  The conditions under which the credit must be repaid (or recaptured) vary depending on when you purchased your house and which version of the credit you claimed.

The first type of credit available is if you purchased a home on or after January 1, 2009 and before May 1, 2010.  If this applies to you, you can claim a credit that is equal to the lesser of 10 percent of the purchase price or $8,000.  The maximum credit is available if you were under a written bidding contract before May 1, 2010, to close before July 1, 2010 and the purchase is complete before October 1, 2010.  If you are eligible for and claim this credit, it is generally not required to be recaptured unless you dispose of the residence, or it becomes no longer your primary residence, within 36 months (3 years) of the date of purchase.  If you do dispose of the property within that time period, you must recapture the entire credit in the year that you dispose of the property.  It is added back as an additional tax in that year on your tax return.  The recapture amount cannot exceed the amount of gain on the sale however (gain is the amount you sell it for over the amount you purchased it for).

The second type of credit available is if you purchased your house after April 8, 2008 and before January 1, 2009.  If this applies to you you can claim a credit of the lesser of 10 percent of the purchase price or $7,500.  This amount must be recaptured by the taxpayer over 15 years.  This is accomplished by adding back 1/15th of the amount of the credit each tax year, beginning with the second tax year after the year you claimed the credit.  If the property is disposed of during that 15 year period, the entire remaining amount of the credit that hasn’t been recaptured must be recaptured in the year the property is disposed of.

The third type of credit is available for long-term residents who already owned a home and purchased a new principal residence between November 6, 2009 and May 1, 2010.  If this applies to you a credit of the lesser of 10 percent of the purchase price or $6,500 can be claimed.  The same rules concerning the time-lines for closing and the recapture of this credit as apply to the first credit also apply to this credit.  So the credit is not recaptured or repaid unless the property is disposed of or no longer becomes the primary residence within 36 months (3 years) of the purchase date. 

There are also certain phaseouts of the credit for certain income levels and certain high-value properties are excluded from eligibility for the credit.  For a full list of all of the requirements concerning this credit and its repayment, please refer to the IRS’ web site here for a general discussion of the credit and here for a discussion specifically of the recapture of the credit.

The First Time Homebuyer Tax Credit was an extremely beneficial credit for a lot of families looking to purchase their first family home and many people took advantage of this credit.  It is important, however, to be acutely aware of any recapture of repayment obligations you may have regarding when you purchased your home and when you took the credit so that you are not surprised by the need to repay these amounts.  Make notes of the tips in this article as well as those on the IRS web site so that you are prepared for any repayments you may need to take into account when preparing your taxes going forward.