First-Time Homebuyer Credit

Are you required to repay it?

The First-Time Homebuyer Credit, first available in 2008 and modified several times since, can be a source of confusion due to the myriad of different potential repayment requirements.

If you purchased a home in 2008 and claimed the first-time homebuyer credit, you must repay the credit in equal installments over a 15-year period beginning on your 2010 tax return.

If you claimed the first-time homebuyer credit for a home purchased after 2008, you do not have to repay the credit IF you own and use the home as your principal residence for at least 36 months beginning on the date of purchase. However, if you dispose of your home or stop using it as your principal residence within this 36-month period, you generally must repay the credit. This includes situations where you sell the home, convert the home to business or rental property, abandon the home, or the lender forecloses on the mortgage.

In most cases, you repay the credit by including it as additional tax on the return for the year you dispose of the home or it ceases to be your main home. As always, there are some exceptions to the repayment rules:

&midot;         If you sell the home to an unrelated person, the repayment in the year of sale is limited to the amount of gain on the sale. The amount of the credit in excess of the gain does not have to be repaid.

&midot;         If you are a member of the uniformed services, you do not have to repay the credit if, after 2008, you sell the home or cease to use it as your principal residence because you received government orders to serve on qualified official extended duty.

&midot;         If the home is destroyed, condemned, or disposed of under threat of condemnation, you do not have to repay the credit as long as you purchase a new main home within two years of the event and you own and use it as your new main home during the remainder of the 36-month period.

&midot;         If the home is transferred to a spouse or former spouse incident to divorce, the credit does not have to be repaid.

&midot;         If you die, repayment is not required. However, if the credit was claimed on a joint return, your surviving spouse is still subject to the repayment rule for his or her half of the credit.

If you have any questions about whether you are required to repay the credit, our tax professionals will be happy do discuss you particular situation.

(June 14, 2010)

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