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Do You Have to Repay the Homebuyer Tax Credit?

This article was written by in Taxes. 21 comments.


If you purchased a house in 2008, beware of this new change on the 2010 income tax returns. Some taxpayers who claimed the first-time home buyer tax credit will be required to pay the credit back to the government this April.

The initial $7,500 tax credit was available to homeowners who purchased their first house in 2008, but it was designed as a loan rather than a gift like the later home buyer tax credits. These taxpayers, from the start, should have been aware that the benefit received from the initial credit would need to be paid back, though I am sure most taxpayers do not know this. The credit requires that taxpayers begin repaying the benefit in two years — and that starts with 2010 tax returns. Those who claimed the credit on 2008 income tax returns need to begin repaying the credit now. Use form 5405 to calculate how much should be repaid, and this amount will be included on line 59 of form 1040.

The good news is that the IRS allows the tax credit to be paid back over a 15 year period, so there is no rush to come up with the full amount right away.

The bad news is the IRS doesn’t have complete records. For many who claimed the initial $7,500 first-time home buyer tax credit, the IRS doesn’t know whether the house was purchased in 2008 or later. I expect that many taxpayers who don’t need to repay their credit will receive a notification of the IRS falsely warning of the repayment requirement, and many who do need to repay the government will not receive a notification.

Those who qualified for the later credit with a maximum of $8,000 or the long-time homeowner credit with a maximum of $6,500 do not have to repay the government. This would require having purchased a house in 2009 or 2010. In those later years, the tax credit was not a loan, it was a gift. The IRS is identifying discrepancies in their records before sending out notices, but perfection will always be a fantasy.

If you receive a notice to repay your homebuyer tax credit but you believe your credit was one of the later credits, give the IRS a call and have your HUD-1 settlement statement ready.

Updated April 13, 2011 and originally published January 20, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 21 comments… read them below or add one }

avatar Josh

I purchased my first home in the summer of 2008, making me eligible for the tax credit that must be repaid. The tax credit had nothing to do with my decision to purchase the home. I decided to take the credit and will be sure to pay it back in full according to the rules set forth by the IRS. It will be $500/year or the balance of the loan if I sell my home before the 15 years has ended. It angers me, though, that so many people who are either deceased or in jail were given the credit by the IRS, the one that does not have to be repaid. It also angers me that homeowners who took the credit that I did will purposely evade their reponsibility to pay it back.

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avatar David M

I also purchased a home in 2008. I purchased in mid April and I purchased before I was aware of the program (or at least I signed my purchase and sale.

Did I/do I know I need to repay this money ABSOLUTELY – it was a 15 year interest free loan. When I got my $7,500 I immediately put this $7,500 against my principle.

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avatar Wendy Thacker

Though I am aware that I have to repay the “credit,” it angers me that the following years people received the credit and don’t have to pay it back. Seems we are always ahead of ourselves. When we purchased the house, we put in all new doors, windows and better insulation believing that we would receive a tax credit. When the time came, the credit went to solar improvements. The following year, doors, windows and better insulation got the credit. And people try to say this is a socialist country. Watch as I laugh all the way to the tax man’s office. UGH!

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avatar Kelley

I agree it is not fair! I purchased a home in October of 2008 and the economy was struggling then, I was a single mom and didn’t want to keep paying rent. I was disgusted that in 4 months time, the people who took out the credit 4 months later didn’t have to re-pay the credit back. Being middle class I stuggle to find the extra $500/year to pay back. I think that the people that have to pay it back should not have to pay it back.

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avatar June

It is terrible the 2008 first homebuyer tax credit must be repaid. Great way to take advantage of first time homebuyers. My realtor used the tax credit to her advantage saying oh you will get a tax credit of $7500, never mentioning it must be repaid. This added to the pressure of my purchase in 2008. It is not fair that the rules changed in 2009 and that a few months makes a difference whether the credit needs to be repaid. If 2009 buyers do not have to repay, neither should 2008 buyers. Calling something a credit is misleading if it needs to be paid back. I cannot think of any other credit by the IRS that needs to be paid back. If I knew the credit was not really a credit in 2008, it would have contributed more realistically on my decision to buy. The government and realtors duped people into buying in 2008 with hyped up talk of this phony credit. They suck!

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avatar 4hendricks ♦248 (Cent)

My friend’s kids both bought new homes in 2008 – taking advantage of the Homebuyer credit, hope they realize they may have to pay it back. We will see.

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avatar Robert @ The College Investor

I purchased my home in 2009, and we qualified for the $8,000 tax credit, that wasn’t a loan. However, we just received a friendly “reminder” from the IRS that if we sell within 3 years, we have to pay the tax credit back. They are really cracking down on this one!

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avatar faithfueledbennetts ♦264 (Nickel)

This makes me think we have a pretty screwy system. Sounds like home buyers in 2009 got the upper hand in the benefit for sure.

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avatar Josh

The 2008 credit was intended to incentivize new buyers into the market at a, theoretically, lower cost to the government, because the credits would be paid back over time (at least by those following the rules). The credit was the result of one piece of legislation.

Lawmakers later decided to pass a new credit in a completely separate piece of legislation. This is the one that does not have to be repaid. I suppose they thought this additional incentive would improve the housing market, much like they thought the car tax break would get people to buy cars.

These programs will never be game-changers the way they are pitched in congress. Anyone who buys a house or car because of a tax credit is making a poor personal finance decision. That’s why these programs are always quite limited in the benefits they provide.

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avatar skylog ♦368 (Nickel)

after reading so much about the credit when it was first announced, i was very surprised to just learn this now. i am actually concerned that there may be people that i know that are not aware of this fact.

i understand the reasoning behind the differences in the 2008 and 2009 laws, but in some ways, i believe they should have kept the legilation consistent.

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avatar gotr31 ♦224 (Cent)

I got the credit for $8000 so I hope I am not one of the descrepancies. It was a nightmare trying to get the credit in the first place! I do not want to go through another round with the IRS trying to prove that I don’t need to pay it back.

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avatar Melissa Santillo Renwick

If you received a credit of $8000 you don’t pay it back, the credit of 2008 was only $7500. When my husband and I purchased our home in 2008 the realtor was extremely clear on the conditions of the credit with us. I also researched the credit myself and found that the website’s were also very clear as to what you were supposed to do . I feel bad for the people who got this credit and did not know , but you must be more skeptical when you are dealing with your own finances. When the credit was released they said this was not a TRUE credit in the sense that it must be paid back, but when Obama released the credit in 2009 they stated that it was a TRUE credit because you kept all of it . It’s the luck of the draw people, of course you are angry because you have to repay, but look at it this way …..the people who purchased a home in 2006 got no credit at all.

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avatar dianne pettit

why doesnt congress and president obama step in and not make people pay back the first time homebuyers loan it seems so unfair and their also holding our tax refund. talk about adding insult to injury come on this is rediculous

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avatar EDI

I recieved a letter from the irs in Janruary stating if I remain in my home for two more years I would not need to pay the credit back. I’ve been living a nightmare for the last four months. My income tax return keeps getting through errors stating I dont owe any money. yet it does not get processed. It keeps getting kicked back. I have an tax advocate and she stated it was a systemic error. something about not having codes in Janruary. I really need my money, but no-one seems to know how to bypass the system and make sure my case doesn’t keep going into errors. I wonder why they don’t keep their information all connected and why the letter I recieved from the irs was not tagged some way to my social security number. what a nightmare. I have bills and things to pay, and was planning to use the tax return for this…

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avatar Lori Rhoads

I was glad to take the “interest free” loan in 2009, having had purchased my first home in 2008. I only qualified for $6500 because of the appraisal rate on my house. I couldn’t afford an expensive house. I’m a single mother so figure I’m rightly MAD that others don’t have to pay it back! Then, I get a bill for interest on my “interest free” loan. I’m mad. I know of people who purposefully bought or exchanged titles of houses to get this credit. The users of America always get around the rules and people like myself get screwed.

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avatar DanceGal

Quit your belly-aching, you got an interest free loan to be paid back over 15 years in inflation de-valued dollars. How about those of us who bought our first homes in the early 1980′s with no tax credits of any sort and mortgage interest rates at up to 17.5 percent? No tax credits there, just another long-term unemployment era with really bad inflation and the cost of re-financing as rates slowly dropped. Also, always read the fine print when you’re signing a contract or taking credits.

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avatar chico ayala

I bought a home and signed the contract Sept 30,2009 then I filed for the $6500.00 tax credit.
then in 2012 the IRS, said they audit my taxes and I did qualify for the credit. The tax lawyer that I have used for the past 7 years, died. What can I do

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avatar Lori

You said “you did qualify” in 2009 when repayment wasn’t in place. It was only 2008. That is why I’m bellyachin’ I have to repay it because I didn’t know if I waited 3 mos, for 2009, I wouldn’t have to repay. Read the above comments.

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avatar Lori

disregard last comment, I meant 2009 is the repayment year. They didn’t even have it in 2008. Yes we have to repay.

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avatar Lori

I just read:
Generally, you must repay the entire credit for the year you sell the home or it is no longer your main home. There are some exceptions to this rule, however, and you do not need to repay the FTHBC for a home you purchased in 2009 or 2010 if it remains your main home for the three years after the purchase. To repay the credit, you must attach a completed Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, to your federal tax return for the year the home stops being your main home.

from website: http://www.irs.gov/uac/First-Time-Homebuyer-Credit-1

so this makes me feel a little better.
P.S. I wish I could delete that first comment I made today. UGH! hit enter before I meant to.

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avatar Ashley

We also received first time home buyers in 2008… It angers me as we’ll.. That a year after we bought the IRS. Decided to make the amount a gift. This is completely unfair.. I feel they should not make 2008 pay it back..

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