Like a lot of Americans, I couldn't pass up the interest free loan the government was doling out for those who purchased their first home in 2008. By all accounts – it was a great deal. I mean, besides your family, where else can you get an interest-free loan?
The next year, financial conditions were still looking bleak and this credit (loan, is a better term) soon turned into a gift. First-time homebuyers sprouted up everywhere to take advantage of this incredible offer. Not only was the government willing to give you money to trash your clunker, they were now going to give you that down payment you needed. Money flowed freely from government coffers and it was all an effort to help stimulate the economy back to prosperity.
When I learned about the “credit-turned-gift” I was furious. “That isn't fair?!” “Why wouldn't they extend this to 2008 buyers?!” “I'm contacting my elected official! How dare they!” were just some of my thoughts and feelings. Basically, I felt cheated.
That said, I knew it was a loan to begin with. And, I also knew those in 2007 who bought their first home weren't given the same interest-free loan I had received.
I am a person rooted in the belief that not everything is fair. And, if the government was always trying to aim at this, I'm not sure I'd like living here anymore.
That said, if you are in the same boat as me – here are a few things to keep in mind if you also took the 2008 first-time homebuyer credit:
- 2010 is the year of the payback. If you took the credit in '08, it now comes due on your '10 taxes. Now, this does not mean you have to pay it all back at once. Remember, this is a 15-year interest free loan. So, each year, you'll have to pay $500 on it. This can go against your taxes and you'll need to file Form 5405 with your taxes.
- 2009 and 2010 credits were gifts. Important to keep in mind if you purchased your home in 2009 and 2010. Your credit was a gift. No payback is necessary. You can thank those paying back their 2008 loans for the gift. ;)
- Under certain conditions, you will have to pay your 2008 credit back on your 2010 taxes. This one will hurt some of you. If you have since sold your home, the credit comes due in the year of the sale. However, if you sold at a loss, your payment may be reduced or eliminated. Lastly, if you rented out your house or stopped using the home as your primary residence after you claimed the credit, it also must be repaid the year this happens.
- Payback options. If you are struggling about when and how you'll be able to come up with $7500 to pay the loan off, you can file Form 9465 (Installment Agreement Request) to work out payment options with the IRS.
Obviously, if you have more questions, consult a tax pro or call up the IRS. Although – you may be better off checking their website first. Wait time can be extremely long right now.
How are you handling the “year of the payback”?