Repayment of Homebuyer Credit Begins for 2008 Home Purchases

If you purchased a home between April 9, 2008 and December 31, 2008 and claimed the first-time homebuyer credit up to $7,500, you need to start paying the credit back in tax year 2010.

For 2010, you have to pay back 1/15th of the credit amount you received. Therefore, if you received the full $7,500, you will need to pay back $500 in tax year 2010.

This first-time homebuyer credit generally must be paid back in equal installments (interest-free) over 15 years beginning two years AFTER the date of purchase. Basically, this credit is an interest-free loan from the government. If the home is sold before 15 years, any remaining credit recapture must be repaid in the year of sale. If the home is sold or no longer used as a principal residence before repaying the credit, the unpaid balance becomes due in the year in which the residence is sold or is no longer used as a principal residence. However, the amount of recaptured credit will not be greater than the amount of capital gain from the sale of the residence to an unrelated person.

There are some exceptions to repayment:

• If you die, repayment of the credit is not required. If you filed a joint tax return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

• There is no accelerated recapture of the repayment amount if the home is transferred in a divorce settlement. The spouse receiving the home is responsible for making all subsequent installment payments.

• There is no repayment if the home is destroyed or condemned and you acquire a new principal residence within 2 years of the event.

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