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?
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?