Do You Need to Pay the Homebuyer Tax Credit?

When the First Time Homebuyer Credit (FTHBC) was first made available, home buyers snapped at the chance to purchase a new home in order to avail of tax credits of between $7,500 and $8,000.

While this federal program is no longer available, if you’ve recently sold your first  home, there may be tax implications. Read on!

What is the First Time Homebuyer Credit (FTHBC)?

The FTHBC was defined as a refundable tax credit which was made available to Americans who were buying their homes as primary residences between 9 April 2008 and 1 July 2009, but was later extended to September 30, 2010 by the Obama Administration.

While the figures of $7,500 and $8,000 were mentioned as the values of the tax credit involved, the actual value of the FTHBC was 10 percent of the purchase price of the home, up to $7,500.

This credit was to be repaid in equal installments of approximately $500 over a period of 15 years.

With the 2010 revision, the maximum credit was increased to $8,000 with the repayment requirement completely removed for as long as the buyer lived in the house for at least three years.

Let us take a look on how the FTHBC is repaid based on IRS requirements.

FTHBC Repayment for Homes Purchased in 2008

  • On the first year after claiming the credit or the fall of 2010, the IRS sends Notice CP03A Repaying your First Time Homebuyer Credit. This document lists down the complete value of your credit and the amount you will need to pay as additional tax.
  • This notice has since been replaced with the online First Time Homebuyer Look-Up Tool in 18 January 2012, which not only documents when the home was purchased and the full amount of credit received, but also keeps tracks of repayments made and the remaining balance.
  • All homeowners who availed of the FTHBC need to check their account yearly to determine their balance.

homebuyer tax credit 1

FTHBC Repayment for Homes Purchased in 2009 or 2010

  • Because of the revision that has been implemented, the homeowner does not need to repay the FTHBC if the home that was purchased in 2009 and 2010 continues to be the primary residence for three years after the purchase.

Circumstances that Will Warrant Full Repayment of the FTHBC

The IRS has clearly enumerated the circumstances wherein the homeowner needs to repay in full the FTHBC and pertinent documents that need to accompany the repayment.

1) Home was purchased in 2008 and FTHBC was received, BUT the home was sold to a related party within the next 15 years

  • The FTHBC must be repaid in full.
  • Any previous repayments will be deducted from the credit.
  • Submission of Form 5405 with the federal tax return for the year the home was sold. This will inform the IRS that the home has been sold and for the repayment of the unpaid credit balance.
  • This is a strict requirement regardless of whether gains or losses have been attained on the property.

2) Home was purchased in 2009 or 2010 and FTHBC was received, BUT the home is sold to related party within 36 months/3 years of purchasing the home

  • Full amount of the credit is expected to be repaid.
  • Submission of Form 5405 with the federal tax return for the year the home was sold. Again, this will report to the IRS of the selling of the home and the need to repay the credit.
  • This is a strict requirement regardless of whether gains or losses have been attained on the property.

3) Primary residence was purchased in 2008, 2009 or 2010, BUT the home is destroyed or condemned and the owner does not replace it by rebuilding or buying a new home within 2 years of the destruction or condemnation of the property

  • The FTHBC is expected to be paid in full.
  • Submission of Form 5405 with the federal tax return for the year that the home was destroyed or condemned.
  • Submission of another Form 5405 with the federal tax return for the year that the 2-year period ends for reporting that the primary residence was not rebuilt or a new home purchased. Any unpaid balances on the credit should be repaid.

4) Home purchased in 2008, 2009 or 2010, BUT it is converted in its entirety into a business or rental property

  • The FTHBC is expected to be paid in full.
  • Submission of Form 5405 with the federal tax year for the year of the home’s conversion into a business or rental property. Any unpaid balances on the credit should be repaid.

Why is the FTHBC Still Relevant?

If the FTHBC is no longer available since 2010, why is it still relevant today? The reason for this is that many residents are not aware of the IRS repayment terms.

homebuyer tax credit 2

Many property owners find themselves caught off guard when they discover that they need to repay their FTHBC after they had sold their home or if their primary residence has been destroyed in a fire or flood.

Other homeowners who are still repaying their FTHBC need to know how to monitor their payments so that they would know how much balance they still have in their account.

For those who availed of the FTHBC while it was still available, it is necessary to consult with your accountants or local tax office on the requirements in case you sold your home or it has been destroyed/condemned.

Unfortunately, many individuals have been brought to court by the IRS for tax fraud as a result of non-payment or questionable repayments of their FTHBC.

The FTHBC Today

Although the FTHBC has long since expired, there are still many homeowners inquiring if they can avail of the credit. Thankfully, every state in the United States is offering their respective versions of the FTHBC.

If you wish to avail of a homebuyers tax credit, Google “first time home buyer grant programs + your state” to learn if you qualify.  Good luck!