If you claimed the First Time Home Buyer tax credit in 2008, you will soon receive a friendly reminder from the IRS to begin repaying your debt, starting with your 2010 tax return. That’s right. If you didn’t know or remember that your tax credit–unlike the ones provided after your year–wasn’t free, Uncle Sam is eager to be the messenger.
2008 Home Buyer Tax Credit Wasn’t Free
Many taxpayers have been under the assumption that the 2008 tax credit for the first time home buyer was free. But according to a new MSNBC article, the IRS is reminding homebuyers that nothing could be further from the truth.
The terms of the 2008 tax credit were that homebuyers could receive the maximum $7,500 credit to ease in the purchase of a home. However, they would be required to repay the credit, which actually served as an interest-free loan, by adding $500 to their tax liability for the next 15 years, starting with their 2010 tax return.
But that’s not the end of the story.
For those who purchased their homes in 2008, they must repay the entire loan, even if they sell their homes before the 15 years are up. In this case, the entire tax credit will have to be paid the tax year the homes are sold.
2009 and 2010 Credit Recipients Are in the Clear
If you’re wondering whether you’ll be responsible for paying back a home buyer tax credit if you received one in 2009 or 2010, you can breathe a sigh of relief. The repayment plan only applies to 2008 recipients.
This may not seem fair to those who took out new mortgage loan in 2008, but unfortunately, that’s the way it is and the IRS is not backing down. In fact, the agency says it has already begun sending out reminders to recipients of the tax credit.
So if the repayment terms apply to you, don’t forget to add this liability to your 2010 tax return. Remember, Uncle Sam knows who you are and will get his money back, one way or another.