The first-time homebuyer tax credit no longer exists – at least, not in its original form. The tax credit was part of a stimulus package designed to jump-start the US housing market in 2008. In 2008, first-time homeowners were eligible for a credit of up to $7,500. When the law was adjusted in 2009, the maximum available credit increased to $8,000. The stimulus expired at the end of 2010.
If you bought a home using the first-time homebuyer tax credit in 2009 or 2010, you’re in luck: you will not have to pay the credit back. However, if you bought the home in 2008, you WILL have to repay the credit. The credit must be repaid over the course of 15 years, in equal installments. (This process is laid out in tax form 5405).
In either case, the credit must be repaid if the property ceases to be your main residence within 36 months of the purchase. If you sell the property, you will repay whichever is less – the full credit, or the gain on the sale. The gain on sale is the amount of profit from selling the house. This profit must be calculated with the tax credit subtracted from the house’s original purchase price.
Confused? Because of the changes made to the law, the IRS now offers a free First-Time Homebuyer Account Lookup tool (available online) to check the status of your credit.
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