If the $7500 first time home buyer tax credit was used to purchase the home…its payback time.
Unlike the buyer ‘credits’ that came in 2009 and extended into 2010 the 2008 $7500 credit was in essence a loan. Now, that loan is due.
For many people who purchased a home for the first time in 2008, it’s payback time.
It sounded like a great deal: become a first-time homebuyer and pocket up to $7,500 in a tax credit. But if you bought that house in 2008 and received the credit, you’re required to start paying it back – now.
That’s because the credit was actually an interest-free loan provided by the government to stimulate a near-dead housing market.
Unlike the homebuyer credits of 2009 and 2010, this one must be paid back over 15 years beginning with this year’s tax return. For someone who got $7,500, that’s $500 a year.
“This is not a freebie,” said Jackie Perlman, a tax analyst at H&R Block’s Tax Institute.
The 2008 credit was available to qualified homebuyers who purchased after April 8, 2008, through the end of that year. The IRS has sent letters reminding folks who fall into this category.
Many have been caught off-guard. They either forgot that the credit was a loan, or believed the loan had been forgiven as Congress subsequently passed different versions of the homebuyer credit that did not require a payback.
“I had one client who called me in a slight panic,” said Jonathan Horn, a certified public accountant. “People are confused.”
If you got the credit and have sold your house or it is no longer your primary residence, the total amount you owe is due on the return for the year those events took place, with some exceptions.
You can choose to accelerate your payments. While the loan is interest-free, some might want to pay it back sooner rather than later.
“A loan is still something hanging over your head,” Perlman said.
“Some people will say, ‘Let me get this over with.’”