Home Repaying the First-Time Homebuyer Tax Credit Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Ginita Wall Published Feb 15, 2012 - [Updated Sep 7, 2017] 3 min read Did you take advantage of the First-Time Homebuyer Tax Credit in 2008? If so, congratulations. But if you sold your home in 2011, beware. You may be in for a tax surprise. Here’s why. First-Time Homebuyers Tax Credit Under 2008 legislation designed to stimulate the housing market, first-time homebuyers could claim a tax credit of up to $7,500 if they purchased a home between 4/8/08 and 12/31/08. But there was a catch: the credit wasn’t a gift from the government, it was really an interest-free loan that had to be repaid over fifteen years, beginning in 2010. So, beginning in 2010 you had to file Form 5405 with your tax return each year and add 1/15 of the credit to your taxes owed. For example, if you received the maximum credit of $7,500, you’d divide that credit by 15 and add $500 to your income taxes each year for the next 15 years. But here’s the problem – most people don’t stay in their home for 15 years. And when you sell your home, the remaining unpaid tax credit is added to your taxes for that year. So if you claimed the $7,500 credit in 2008, repaid $500 with your 2010 tax return, and sold your home in 2011, be prepared for an additional $7,000 tax bite when you file your tax return in April. Ouch! What if your house didn’t increase in value, and you end up making next to nothing on the sale? Recognizing that the credit repayment could easily exceed the amount you realize, the IRS caps the amount you owe in recapture to the amount of the gain you realize. So if you bought your home for $150,000 and your sales proceeds after costs of sale are only $152,000, the maximum credit you’d have to repay is $2,000. Here’s another trap to beware of. You don’t have to sell the home to become liable for the tax credit repayment. You can trigger the tax recapture by moving out of your home, even if you continue to own it. So if you moved out in 2011 and kept the home as a rental property, boom – you owe the rest of the tax credit with your 2011 tax return. Fortunately the IRS has some mercy when circumstances are beyond your control. For example, if you deed your home to your spouse in a divorce settlement, there’s no recapture of the tax credit (but your spouse does have to repay the credit over the remainder of the fifteen years and triggers the recapture if he or she moves out within the 15-year period). If you lose your home in a foreclosure, your repayment is limited to the amount of the gain. And if you die, you are off the hook as well. And if you or your spouse are in the military and sell because of an order to relocate for extended duty, you don’t have to repay the credit. The 2008 credit had its traps and pitfalls, but it did help people buy the house they wanted and stimulated home sales. That’s why Congress later extended it to 2009 and 2010. Sorry to say, this isn’t a case where the early bird gets the worm. When the credit was extended, it was increased to $8,000, expanded to include a reduced credit for those who were not first-time homebuyers, and only has to be repaid if the taxpayer moved out within three years. Unfortunately, those features were not applied retroactively to 2008, leaving early-adopters with an obligation to repay the tax credit that those who came later to the party didn’t have to. Previous Post Tax Extender: Educator Expense Deduction Set to Expire Next Post New Baby? New Tax Deductions! Written by Ginita Wall More from Ginita Wall 85 responses to “Repaying the First-Time Homebuyer Tax Credit” Newer Comments » Can anyone tell me if you have to repay the tax credit in full if you are military and receive orders to move? We did not sell our house and are renting it. I’m wondering if there is an exception for military families because there is no way we would be in one place for 15 years. Thank you Reply Hi Denise, The Homebuyer Credit repayment may be waived if you receive a government order to move for a qualified official extended duty service. Please see this IRS information http://www.irs.gov/uac/First-Time-Homebuyer-Credit:-Members-of-the-Military-and-Certain-Other-Federal-Employees Thank you, Lisa Greene-Lewis Reply Hi TurboTaxLisa, My husband and I bought our house with the military extension and we should not owe anything on May 3, 2013, since it will have been 3 years that we’ve lived in the house at that point. He is getting PCsed to Korea for a year in February, but we would actually like to get a divorce and give the house to me. Do we need to wait until after May 3, 2013, or are we free and clear of owing the credit back? Any help or links would be greatly appreciated. Lisa, When selling a home are the costs associated with selling included in the profit/lack of. ie: Home purchase price = $200,000. Home sold = $202,000. Seller fees (realtor, closing etc.) = $12,000. This leaves me with a $10,000 deficit. Due to sale price will I owe $2,000 this coming tax year. Or are the fees taken into consideration? Thanks!! Reply I’m having trouble finding information on what’s the status of the first-time home buyers tax credit for 2012? Is it still available and what are the rules? Janet Reply Hi Janet, Unfortunately the First-Time Homebuyer credit expired in 2010 unless you were a member of the military. If you were a member of the military you had until 6/30/2011 to take advantage of the First-Time Homebuyer Credit. Thank you, Lisa Greene-Lewis Reply Lisa, quick question! If we bought our house in 5/2008 and got the $7500, would we still have to pay it? Also, our house did drop in value, albeit a small amount. Hypothetically, if we bought the house for 100k, tax value dropped to 99k, we ow 94k. If we sold the home for 96k would we still owe the 2k? is that part of the ‘gains’ category? Thank you for the help in understanding tricky law! Reply I got the 2008 credit, and moved out of my house in 2011. I now rent it out because it didn’t sell. So now I owe the IRS the entire amount in full, which I’m unable to pay. What happens if I’m able to sell my house this year? Do the same rules apply even though I rented it for a little bit? Reply Why I am being told that i don’t owe $500 this year for the homebuyer tax credit? I took the credit in 2008 filings, and began repayment in 2010 returns, it is telling me I don’t owe anything this year, but I should owe $500 for the next 15 years I believe! Help this is the only thing holding up my taxes! Reply I’m in the processes of renting my house out in the next few months. I know I have to pay the remainder of the 2008 tax credit for this year. However, when I go to sell the property in a few years, do I still get the “credit” if there is a loss on the property, or I do I basically lose this when I rent the place out? Reply Hi. My wife and I got married. We both own houses and she moved into mine. She took the 08 home buyer tax credit and we rent out her house, do we have to pay back the entire credit this year? Is there a way we don’t have too and just pay $500 a year still? Thanks. Reply What happens if you have filed and you have direct deposit on you taxes and how do you amend the homebuyer credit that you owe and if the home is being short saled and not in foreclosure yet? How do you know how much you will still owe the government? Reply Hi Terie, So I think you are saying you already filed your taxes and requested direct deposit, but need to amend your taxes for the homebuyers credit. You can still amend your taxes if you are getting a direct deposit, but if your home was not yet sold in 2011 you would not need to amend your tax return. If your home is being short saled or is foreclosed on this year, then you would start paying the credit back in the year your home is sold. Thank you, Lisa Greene-Lewis Reply Yes that is what I am saying. I remembered that we had started the repayment last year as we received something stating we owed $250 I think to start that. But this time we did the taxes on line and did not see a form for that. We did have help but as you stated we have moved from the house and no longer live there. What should I do if I’ve already mailed in my tax refund and forgot to include the First Time Homebuyer Credit? Is it too late to mail in the 5405 or will IRS automatically deduct it from my refund? Reply Hi Mary, If the homebuyer tax credit was excluded you should amend your tax return, but don’t amend your tax return until you find out if your tax return was accepted. If it is rejected then you just need to fix your tax return and not amend it. Thank you, Lisa Greene-Lewis Reply Hi Lisa, I also forgot to include the payment for the homebuyer tax credit but it says my return was accepted, does that mean I will be getting my refund and they will just deduct the payment? 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Can anyone tell me if you have to repay the tax credit in full if you are military and receive orders to move? We did not sell our house and are renting it. I’m wondering if there is an exception for military families because there is no way we would be in one place for 15 years. Thank you Reply
Hi Denise, The Homebuyer Credit repayment may be waived if you receive a government order to move for a qualified official extended duty service. Please see this IRS information http://www.irs.gov/uac/First-Time-Homebuyer-Credit:-Members-of-the-Military-and-Certain-Other-Federal-Employees Thank you, Lisa Greene-Lewis Reply
Hi TurboTaxLisa, My husband and I bought our house with the military extension and we should not owe anything on May 3, 2013, since it will have been 3 years that we’ve lived in the house at that point. He is getting PCsed to Korea for a year in February, but we would actually like to get a divorce and give the house to me. Do we need to wait until after May 3, 2013, or are we free and clear of owing the credit back? Any help or links would be greatly appreciated.
Lisa, When selling a home are the costs associated with selling included in the profit/lack of. ie: Home purchase price = $200,000. Home sold = $202,000. Seller fees (realtor, closing etc.) = $12,000. This leaves me with a $10,000 deficit. Due to sale price will I owe $2,000 this coming tax year. Or are the fees taken into consideration? Thanks!! Reply
I’m having trouble finding information on what’s the status of the first-time home buyers tax credit for 2012? Is it still available and what are the rules? Janet Reply
Hi Janet, Unfortunately the First-Time Homebuyer credit expired in 2010 unless you were a member of the military. If you were a member of the military you had until 6/30/2011 to take advantage of the First-Time Homebuyer Credit. Thank you, Lisa Greene-Lewis Reply
Lisa, quick question! If we bought our house in 5/2008 and got the $7500, would we still have to pay it? Also, our house did drop in value, albeit a small amount. Hypothetically, if we bought the house for 100k, tax value dropped to 99k, we ow 94k. If we sold the home for 96k would we still owe the 2k? is that part of the ‘gains’ category? Thank you for the help in understanding tricky law! Reply
I got the 2008 credit, and moved out of my house in 2011. I now rent it out because it didn’t sell. So now I owe the IRS the entire amount in full, which I’m unable to pay. What happens if I’m able to sell my house this year? Do the same rules apply even though I rented it for a little bit? Reply
Why I am being told that i don’t owe $500 this year for the homebuyer tax credit? I took the credit in 2008 filings, and began repayment in 2010 returns, it is telling me I don’t owe anything this year, but I should owe $500 for the next 15 years I believe! Help this is the only thing holding up my taxes! Reply
I’m in the processes of renting my house out in the next few months. I know I have to pay the remainder of the 2008 tax credit for this year. However, when I go to sell the property in a few years, do I still get the “credit” if there is a loss on the property, or I do I basically lose this when I rent the place out? Reply
Hi. My wife and I got married. We both own houses and she moved into mine. She took the 08 home buyer tax credit and we rent out her house, do we have to pay back the entire credit this year? Is there a way we don’t have too and just pay $500 a year still? Thanks. Reply
What happens if you have filed and you have direct deposit on you taxes and how do you amend the homebuyer credit that you owe and if the home is being short saled and not in foreclosure yet? How do you know how much you will still owe the government? Reply
Hi Terie, So I think you are saying you already filed your taxes and requested direct deposit, but need to amend your taxes for the homebuyers credit. You can still amend your taxes if you are getting a direct deposit, but if your home was not yet sold in 2011 you would not need to amend your tax return. If your home is being short saled or is foreclosed on this year, then you would start paying the credit back in the year your home is sold. Thank you, Lisa Greene-Lewis Reply
Yes that is what I am saying. I remembered that we had started the repayment last year as we received something stating we owed $250 I think to start that. But this time we did the taxes on line and did not see a form for that. We did have help but as you stated we have moved from the house and no longer live there.
What should I do if I’ve already mailed in my tax refund and forgot to include the First Time Homebuyer Credit? Is it too late to mail in the 5405 or will IRS automatically deduct it from my refund? Reply
Hi Mary, If the homebuyer tax credit was excluded you should amend your tax return, but don’t amend your tax return until you find out if your tax return was accepted. If it is rejected then you just need to fix your tax return and not amend it. Thank you, Lisa Greene-Lewis Reply
Hi Lisa, I also forgot to include the payment for the homebuyer tax credit but it says my return was accepted, does that mean I will be getting my refund and they will just deduct the payment?