Recapture and Repayment of Homebuyer Tax Credits

Taxpayers who have claimed the homebuyer tax credits over the last couple of years may have to repay some of the credit, starting with 2010 tax returns.  The rules differ depending on which credit you claimed.

$7,500 Credit for Home Purchases Between April 8, 2008 and December 31, 2008
The original First-Time Homebuyer Credit was a credit of up to $7,500 for first-time homebuyers.  Anyone who claimed this credit will have to repay the credit over 15 years, starting with their 2010 tax return.

Example
Someone claiming the full $7,500 credit will repay $500 of the credit each year for the next 15 years.  The $500 is included as additional tax owed on the back side of Form 1040.

If the home gets sold at any time during the 15-year repayment period, the outstanding amount of the credit is due in full in the year of the sale.

$8,000 or $6,500 Credit for Purchases Between January 1, 2009, and April 30, 2010
Legislation in November of 2009 changed the original First-Time Homebuyer Credit and added a second credit for long-time homeowners who purchased a new home.  The First-Time Homebuyer Credit was increased to up to $8,000 for homes purchased between January 1, 2009, and April 30, 2010.  Most importantly, this credit no longer had to be re-paid -- as long as the homebuyer lives in the new home for at least 36 months.

The legislation added a $6,500 credit for long-time homeowners who purchased a new home between January 1, 2009, and April 30, 2010.  This credit also does not have to be re-paid -- again, as long as the homebuyer lives in the home for at least 36 months.

If the homebuyer doesn't live in the home for at least 36 months, the entire amount of the credit is subject to being recaptured.  So, someone who claimed the full $8,000 credit for a first-time home purchase could see their tax bill increase by $8,000 if they sell their home before the end of 36 months.

There are certain exceptions to the recapture rules in situations where the homebuyer dies, is in the military, or sells the home for a loss.  It is best to seek the help of a tax professional if you think the recapture rules might apply to you.