Taxes: Payback Time

Claimers of the $7,500 first-time homebuyer tax credit in recent years start repayment on their 2010 tax returns

If in way back in 2008 you claimed the federal tax credit for buying your first home, now is the time to start paying Uncle Sam back.

Buyers who claimed $7,500 credit – which was offered on certain home purchases in 2008, 2009 and 2010 – are required to start repaying the credit in 15 annual $500 installments beginning this year with their 2010 tax returns.

Repayment rules differ, depending on when and under what circumstances the home was purchased. The IRS is sending a letter to taxpayers who claimed the credit that explains the situations in which they have to repay it, such as purchasing a home in 2008, 2009 or 2010; a sale of a primary residence; and the change of use of a primary residence.

Example: A taxpayer who claimed the $7,500 credit on their 2008 tax return will repay $500 as an additional tax on their returns from 2010 to 2025, or until the home is sold or is no longer used as a primary residence.

Unlike the $7,500 credit, the $8,000 first-time homebuyer tax credit from 2009 and 2010 does not have repayment requirements unless the home ceases being used as primary residence within three years of purchase.

The $8,000 first-time buyer tax credit expired for most Americans in 2010 but remains eligible till April 30, 2011, for service members who were on extended duty outside the U.S. between Dec. 31, 2008 and May 1, 2010.

Source: NAHB