Monday, May 27, 2013

Paying Back the First-Time Home Buyer Credit

Those taxpayers who purchased their first home in 2008 and claimed the First-Time Home Buyer Credit, are required to pay the credit back in 15 equal annual installments. Despite the name, during 2008 the credit was more like a no-interest loan than a true credit, and payments should have begun on your 2010 tax return. If you haven’t begun the payback yet, you need to consult with a tax professional to ensure you get started with your payments as soon as possible.

If you purchased your home after 2008, you are not required to pay back the credit unless you sold the home or stopped using it as your primary residence within 36 months of the purchase. In this scenario, as well as the same scenario for homes bought in 2008, you will be required to repay the entire credit on the following tax return. 

To show the annual repayment on your return, use line 59b on form 1040. For the one-time complete repayment, because you no longer use the home as your primary residence, use form 5405 Repayment of the First-Time Homebuyer Credit and attach it to your return.

The IRS even has a tool to help you determine the correct information for reporting the repayment. Find it online at http://www.irs.gov/Individuals/First-Time-Homebuyer-Credit-Account-Look-up. You will need to provide your social security number, date of birth and address in order to utilize this tool. If the credit was claimed on a joint return, you will also need to look up your spouse’s share of the credit because the IRS assumed each spouse claimed half of the credit.

The online tool will provide you with the original amount of the credit, the annual repayment amounts, the total amount paid thus far and the balance still remaining. Print the page to assist your tax preparer in completing your returns, making sure to keep a copy for your personal records.

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