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By September 15, 2010 0 Comments Read More →

1 Million First-Time Home Buyers To Owe IRS

More than a million first-time home buyers are likely to get unfriendly letters from the IRS, brief little notices from Uncle Sam which say we want our money back.

A report by the Treasury Department’s Inspector General for Tax Administration shows that nearly 1.8 million taxpayers filed claims under the government’s First-time Homebuyer Tax Credit Program for 2009. Many received an individual credit of as much as $8,000 and their group benefit amounted to almost $12.5 billion.

Unfortunately, 959,813 buyers who purchased in 2008 will have to repay their money because — as we have explained — the 2008 “tax credit” was actually a 15-year loan.

However, there are additional claims that were filed in 2009 and 2010, meaning that the total number of homeowners making repayments to Uncle Sam will likely exceed 1 million.

So what went wrong? How could so many people — and there will be more — wind up owing money?

Qualifications


To stimulate the homeownership market the government has offered several tax credits for “first-time” homebuyers during the past few years. In general, a first-time homebuyer for purposes of the programs is defined as someone who has not owned property for at least three years. In addition, there have been other qualifications as well.

  • In 2008 under President Bush there was a first-time homebuyer “credit” of up to $7,500 for married couples and single taxpayers but no more than $3,750 for married individuals filing separately. This money, however, was actually a loan which had to be repaid over a 15-year period.
  • In 2009, under President Obama the credit was raised to $8,000 and no repayment was required. The money is an outright grant. However, there are other standards which have to be met, such as owning the property for at least three years.
  • In November 2009 the deadline for the first-time homebuyer credit was extended from December 1, 2009, to contracts made before April 30, 2010 but which closed no later than June 30th. (For those on active-duty military service the deadline is April 30, 2011.)
  • In 2010 the June 30th closing deadline was pushed back to Sept. 30, 2010.

Repayment Required

There are a number of events that could set off a repayment demand by the IRS.

First, the borrower was not a “first time” purchaser as defined by the rules.

Second, the property of a 2008 buyer ceases to be the main home before the end of the 15-year recapture period.

Third, the home of a 2009 or 2010 buyer ceases to be the taxpayer

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