The first-time homebuyer tax credit craze began in 2008 for most purchasers. Four years later, there may still be tax implications for those that claimed the credit. Did you sell or are now renting a home you purchased with the first-time homebuyer tax credit?

The first-time homebuyer tax credit
It doesn’t mean that this is the first home you’ve ever purchased. The law defines a “first-time home buyer” as a buyer who has not owned a principal residence during the three-year period prior to the purchase. So even if you owned a house from 1993 to 2002, but haven’t owned since, you qualified in 2008, 2009 or 2010. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse. What about if you’ve owned a home for a long time and are looking to buy a new one? If you are a long-time resident and owner of the same main home and you buy a new home, the law may allow you to claim a homebuyer credit of $6,500. The new home must be under a binding contract before April 30, 2010 and closed by June 30, 2010.

What happens if I purchased a home in 2008 and sold it this year?
As you may be aware, the 2008 homebuyer tax credit works similar to an interest free loan in that it must be repaid over a 15 year period. Specifically, any homebuyer that claimed the credit in 2008 was obligated to pay $500 per year over a 15 year period for a total of $7,500. If you decided to sell the home this year or 4 years after claiming the credit, then you would have repaid $2,000 of the credit. For 2012, you would be obligated to repay the remaining amount of the credit or $5,500 with your tax return and form 5405.

What happens if I purchased a home in 2009 or 2010 and sold it this year?
For 2009 and 2010 purchasers, the maximum eligible homebuyer tax credit increased to $8,000 as a result of the American Recovery and Reinvestment Act of 2009. More importantly, homebuyers that claimed the tax credit were not obligated to repay it back unless they did not maintain the home for at least 36 months following the purchase. For instance, if you purchased a home in June of 2009, you would need to maintain the home as your primary residence through June 2012. If you fail to meet this requirement, you would have to repay the entire amount of the tax credit in the year in which the property ceases to be your primary residence. It is important to note that having a gain or loss on the sale of the property, is completely irrelevant to the provision as some might think.

What happens to the homebuyer tax credit if I rent a home that I purchased in 2009 or 2010?
The IRS doesn’t provide much relief for this type of action. If you convert your primary residence to a rental property, you must forfeit the homebuyer tax credit you claimed by repaying it in full when filing your tax return with Form 5405.

What if you served as military personnel on active duty during the period that the tax credit was in effect?
For this group, the homebuyer tax credit was extended to include purchases up to April 30, 2011. However, those same provisions previously mentioned still apply such as the owner selling their home or converting the property into a rental within the 36 month period after the purchase.

More questions? Ask your 2012 homebuyer tax credit questions online.

Related Articles
->The Homebuyer Tax Credit Extension Is For Paperwork
->Can I Still Claim the Capital Gains Exclusion If I Sell Within 2 Years?
->Home Buyer Tax Credit Help
->What Tax Breaks Are Available When Selling A Home?
->Purchasing a Property in Short Sale Will Become More Attractive
->Major Tax Break May Expire For Homeowners That Are Underwater
->How Should Rental Property Be Reported on My Tax Return?