Avoid owing the IRS $8000 — your home buyer tax credit
Posted October 19th, 2009 in Mortgage Loan InsightsNew data shows that cases of fraud involving the $8000 tax credit for first time homebuyers is on the rise, and the IRS is stepping up it's efforts to combat the issue. According to the Wall Street Journal today there are nearly 100,000 cases of suspected fraud currently being investigated, and nearly one million claims for the credit. Many of the fraud schemes involve people filing for the credit even when there was no real estate transaction as a basis, or claiming the credit even though they're not first-time buyers.
Here's ONE CONDITION every home buyer who has, or is in process of, receiving the $8000 credit absolutely MUST KNOW to avoid having to repay the tax credit in full, straight from the IRS:
"The obligation to repay the credit on a home purchased in 2009 arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased being your principal residence."
In other words, if you legitimately receive the credit you have a legal obligation to owner-occupy the property as your primary residence for at least 3 years, or face the possibility that the IRS will come knocking looking for a refund.
P.S. you won't be able to blame anyone else if you find yourself in hot water with the IRS because the $8000 is a separate credit issued outside of the real estate transaction and therefore doesn't carry the same disclosure requirements pertaining to everything else about your home loan does. It's a separate issue altogether.
If this little bylaw wasn't explained to you by your mortgage lender, realtor, or at the very least, your accountant or tax professional you know it now. Do your friends, family members, and co-workers a favor and tell those that received the credit that they'll owe the money if they move out OR SELL THE PROPERTY within 3 years of closing. You'll be their hero!
Incidentally, the $8000 tax credit for first-time buyers is set to expire on November 30, 2009.
If you're in the market for a home and you qualify as a first-time home buyer (you haven't owned a home in the 36 months prior to your purchase) then you'd best get moving.
There are rumors in Washington about a proposed extension of the credit — even an expansion of the credit to as much as $15,000, but don't count on it. The Obama administration is finally starting to feel the heat over the soaring deficit from failed bailout programs and proposed multi-trillion-dollar ideas like universal healthcare. Some incentives are destined to go away soon, and the first-time home buyer credit is likely in it's last days.
One last Q & A while I'm on the topic of the soon-to-expire home buyer credit:
NO MORTGAGE LENDER OR BANK will pay you the $8000 credit in advance to use towards your down payment. The concept was bounced around earlier in the year but went nowhere. Your down payment funds must come from YOU or as a legally donated "gift" from a relative.
