Is the first-time homebuyer’s tax credit really just a tax liability?

Feb.February 22, 2011 02:49 PM
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Thousands of taxpayers took advantage of the first-time homebuyer tax credit which expired last May. People who purchased a main residence between January 2009 and April 30, 2010 may have been eligible for a maximum tax credit of $8,000 for the first-time homebuyer and a $6,500 credit for the repeat homebuyer.

This credit does not generally have to be repaid unless the home is disposed of or ceases to be a main residence within 36 months of the date of purchase.

But for first-time homebuyers who purchased a home between April and December of 2008 and claimed a different federal tax credit, they are faced with a tax liability.

“If you claimed the first-time homebuyer credit on your federal tax return for the home you purchased in 2008, and you owned and used the home as your main home during all of 2010, you are unfortunately required to start repaying the credit back,” said Ross Rizzo, a tax partner at Salibello & Broder.

For those unfortunate taxpayers, repayment of the credit begins this year, and the first installment is due with the 2010 tax return. The IRS has begun sending notices to the taxpayers summarizing how much they received and what amount they need to repay. Generally, the installment will be spread in equal amounts over the next 15 years.

The first-time homebuyer credit is similar to a 15-year interest free loan. Normally, it is repaid in 15 equal installments. The repayment amount is included as an additional tax on the taxpayer’s income tax return for that year. For example, if you received the maximum tax credit of $7,500 first-time homebuyer credit on your 2008 return, you will begin paying it back on your 2010 tax return with a payment of $500 in tax liability. The $500 tax liability will be due each year from 2010 to 2014.

The fortunate taxpayers are those taxpayers who purchased their main residence in 2009 or before May 1, 2010 and qualified and filed for the tax credit on their income tax return. For all intents and purposes, they are off the hook.

Michael Stoler is a columnist for
The Real Deal and host of real estate programs “The Stoler Report” and “Building New York” on CUNY TV and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a director at Madison Realty Capital as well as an adjunct professor at NYU Real Estate Institute, and a former contributing editor and columnist for the New York Sun.

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