Tax Issues With First Time Home Buyer Credit
Saturday, May 5, 2012, 2:00 AM | 1 Comment
If you received the first-time home-buyer credit for a home purchased in 2008, you should have begun repaying the credit in 2010. This repayment must continue in 2012 and years beyond until the full amount is repaid. You may also prepay a portion of the credit if that will work best for your financial situation.
In many instances if the home ceases to be your main home, the full amount remaining to be repaid must be repaid with the filing of the tax return following that change.
During the 15-year repayment period, the taxpayer’s income tax is increased by 6 2/3% of the amount of such credit for each taxable year.
For example, if you received a $7,500 first-time home-buyer credit for a home purchased in 2008, you will add $500 (6 2/3% of $7,500) to your income tax liability each year for 15 years.
If the taxpayer disposes of the principal residence, or ceases to use as the principal residence, the home for which they received the first-time home-buyer credit, the repayment of the credit is accelerated.
The amount of credit remaining to be repaid is added to the income tax liability of the taxpayer for the year of sale or year the home ceases to be the principal residence.
If the house is sold to an unrelated person, the repayment is limited to the amount of gain (if any) on the sale.
For homes purchased in 2009 and 2010 repayment only applies if within the first 36 months the taxpayer disposes of the principal residence or ceases to use as the principal residence, the home for which they received the first-time home-buyer credit.
The amount of credit remaining to be repaid is added to the income tax liability of the taxpayer for the year of sale or year the home ceases to be the principal residence.
If the house is sold to an unrelated person, the repayment is limited to the amount of gain (if any) on the sale.
Forgiveness of Mortgage Debt
The Emergency Economic Stabilization Act of 2008 allows distressed homeowners to exclude all or part of the mortgage debt forgiven on a principal residence from income.
This applies for debt forgiven in 2007 through 2012. For more details on these debt relief provisions, see Form 982 and IRS Publication 4681.
Section 179
The maximum section 179 deduction you can elect for property placed in service in 2012 will be $125,000. This amount will be reduced when the cost of section 179 property placed in service during the year exceeds $500,000.
For years beyond 2012 a lower maximum dollar limit is to be $25,000 with the amount being reduced when the cost of section 179 exceeds $200,000.
In a Nutshell
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