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Accounting for Uncle Sam: The homebuyer tax credits

I get questions regularly from folks about the homebuyer tax credits — what should they do (if anything) about repaying it, etc.

Here’s a summary of the ground rules for each of the homebuyer tax credits. If you bought a home between April 8, 2008, and April 30, 2010, you should understand your tax situation.

(I have to add the obvious statement that I am a real estate professional, not a tax professional, so my observations below are not to be taken as tax advice, thank you.)

The first homebuyer tax “credit” was, in effect, an interest-free loan for 10 percent of the purchase price up to $7,500. That deal ended Jan. 1, 2009. If you took advantage of that program, you were required to repay the federal government in equal installments over 15 years. Hopefully you knew that, because a payment was due last month with your income tax return. This homebuyer incentive program also has a mandatory repayment in full should you sell the home (or otherwise not make it your primary residence) before the 15 years is up. Bummer.

The second homebuyer tax credit deal was for homes sold between Jan. 1, 2009, and April 30, 2010 (note that Congress extended the closing date for this program until Sept. 30, 2010). This was an $8,000 incentive for first-time homebuyers. The caveat for this incentive was that you needed to make the home your primary residence for at least three years after your closing date. Should you blow the residency requirement, you would have to repay the entire amount at the sale or transfer of the property. Interestingly, should you sell in such a way that your proceeds are less than the tax credit amount, you would only have to pay up to the amount of the proceeds.

A third tax credit of $6,500 was available for non-first-time buyers with the same timelines and guidelines as the $8,000 credit described above.

Bottom line?

You should have filed an IRS form 5405 “First-Time Homebuyer Credit and Repayment of Credit” for your latest tax year if you took advantage of a credit program and/or needed to send an installment payment in. I would definitely consult a tax professional if you were involved in a homebuyer tax credit program. Don’t take chances.

Jeff Geoghan is a residential real estate agent and founder of the Jeff Geoghan Realty Group in Lancaster County. He also hosts “YourLancasterHomeTV.” He holds a Green designation from the National Association of Realtors and blogs about homes and green issues.

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