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Homebuyer credit payback confusion

By Kay Bell · Bankrate.com
Thursday, September 9, 2010
Posted: 3 pm ET

That headline isn't anything new. There's been a ton of confusion about the first-time homebuyer tax credit, which has been revised what seems like a million times since it was created back in 2008. OK, it's only been four times, but who's really counting?

The tax break is supposed to come to an end this month, with the latest group of home purchasers closing by Sept. 30 on a residence for which they had a valid contract by April 30.

But this tax year also is the one in which an often-overlooked requirement of the original first-time homebuyer credit will come to pass: The credit will have to be repaid.

Yep, if you recall, the first first-time homebuyer credit wasn't a real credit. That $7,500 that taxpayers could claim on for a 2008 property purchase was in reality an interest free federal loan that must be paid back.

Those loans are now coming due, but the federal office that keeps an eye on the IRS says the tax collection agency needs to improve its ability to identify taxpayers who must start repaying the credit when they file their 2010 returns next year.  The payments are equal installments made with each annual tax filing for the next 15 years.

Of course, if folks already sold the homes which they bought using the original credit, it was to have been paid back in the tax year in which the residence was sold.

But the Treasury Inspector General for Tax Administration, or TIGTA, is concerned about this first batch of payments that are coming due next filing season.

In a new report, TIGTA found that while the IRS has taken "important initial steps to identify such individuals," the IRS has incorrect purchase date info in its database for some taxpayers who took the original credit back in 2008.

That means, says TIGTA, some taxpayers will get incorrect notices of their repayment responsibility. Worse, others that are required to repay the credit might not be identified at all .

TIGTA's study found that an estimated 73,119, or 4.1 percent, of the approximately 1.77 million individuals who received the original first-time homebuyer credit had incorrect purchase dates recorded at the IRS. Of those, 59,802 had purchased their homes in 2009, but the IRS incorrectly recorded the purchases as 2008 or the years were not recorded. These taxpayers could incorrectly receive notices requiring repayment, TIGTA found.

The IRS agrees with the TIGTA recommendation that the tax agency take steps to correct errors in the IRS system regarding the tax credit. What else are IRS officials going to say?

How about that they plan to take steps to improve controls, but we don't have any details from the IRS on those proposed improvements yet.

Given that the first-time homebuyer tax credit has been a scandal-ridden debacle from the get-go, I don't have much hope that the Treasury will ever get back all the original credit money that was claimed. I'm just keeping my fingers crossed that when this month ends, so does this ill-advised tax break.

Did you claim the $7,500 homebuyer tax credit? If so, are you prepared to give Uncle Sam his first $500 repayment when you file your 2010 tax return?

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8 Comments
Melissa
September 16, 2010 at 10:10 am

I feel disgusted and cheated when I hear self-employed people, independent contractors and small business owners say how they forget to include income or fudge deductions to make sure they don't pay taxes they feel are unfair.
As a single, childless, middle class taxpayer, I get whacked with taxes every single year. I don't cry for a renter's subsidy or a credit for being without children and thus using less resources.
Heather, Bill-you took advantage of a tax credit that sounded good to you at the time. It was the only game in town. Yes, it is unfortunate that the next version of the credit was a better deal, but you don't qualify for it because you already own a home. Pay back what you owe and enjoy your homes and mortgage interest deduction.

Kay Bell
September 13, 2010 at 1:15 pm

Heather, since this has been on the books for years all major tax software prep programs should be fine with making sure affected homebuyers properly pay back this fake credit.

Heather
September 13, 2010 at 1:02 pm

We took the loan credit for our 2008 purchase. I'm assuming that my tax software will incorporate the repayment.

Jackie
September 11, 2010 at 11:43 pm

I did take the original tax credit and like "Bill" (and probably many others), I felt cheated when the revised 2009 credit was passed. This is especially true since I closed just 11 days too soon to take the revised credit. So I will dutifully pay back the $500 credit on my 2010 tax return, but I will also find a way to skim $500 (read: cheat) somewhere else on the return (not hard to do since I'm self-employed and can easily "forget" to report some income) and will continue to so for the next 15 years.

Kay Bell
September 11, 2010 at 7:39 pm

There's an old saying, at least here in Texas, that you don't want to be first or last for anything. If you're first, some improvement will come along to benefit others and if you're last in line for a benefit, people tend to be tired of offering breaks so they say, sorry. The first curse is definitely true for folks like you, Bill, who took advantage of the original $7,500 tax break. Sorry about that, but I hope it at least helped you get into a house you wanted.

Melissa
September 10, 2010 at 4:59 pm

As with Bill, yes and yes. I have added the $500 to my estimated taxes spreadsheet and adjusted my withholding accordingly. I don't anticipate any surprises on April 15.

Bill
September 10, 2010 at 11:40 am

Yes, and yes. I did in fact take the original 2008 Home buyer tax "loan" and know that the first $500 is due to be re-paid on my 2010 taxes. I must say however that I felt cheated when the revised "credit" in 2009 did not require repayment. If there is so much issue with identifing people like me who took this initial loan why doesn't Congress cut their losses on the Homebuyer programs and turn the original "tax loan" into the "tax credit" that everyone else recieved. From what I can gather there can't be too many people like me that got off the sidelines early. What's another 50-60 million in tax forgivess?