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April 7th, 2011 - Although today it might seem like much ado about nothing, the original 2008-2009 first-time homebuyer tax credit seemed like big news; designed to help address the faltering real estate industry, new home buyers could get what amounted to an interest free loan up to $7,500 in order to purchase a property. Wondering why this is newsworthy? Well, it's time to start making payments on that tax credit. Unlike the later tax credits which did not have to be refunded, those unfortunate homeowners that jumped on the bandwagon early on, are forced to repay the entire "credit" beginning in 15 equal annual installments. Homeowners that took advantage of the later $8,000 tax credit are under no such requirement. If you are thinking this was a raw deal...well, just join the millions of average Americans that actually bought a house they could afford and made their mortgage payments who cringe at the sight of 4.5% fixed interest rate loans and $75,000 principal reductions being handed out to people that couldn't qualify to rent a home. In short - there is that isn't fair right now but don't expect the repayment requirement to go away any time soon. For someone that took the entire tax credit of $7,500 that equates into an additional $500 on the tax bill for the next 15 years straight....assuming you are still living in the house as your primary residency. Smart homeowners still made out great with the credit; for example, it was possible to take the amount and apply it to the principle of the home savings tens of thousands of dollars over the life of the loan. Others may have found the credit to make the difference between purchasing a property or not given higher down payments and more stringent lending requirements. Either way, win or lose, it's now time to pay the piper. If you convert the home to a rental or vacation property then be prepared to cough up the entire amount on your next income tax return. Rather sell? You owe Uncle Sam any profits made on the property up until the full amount of the original credit. Even if your house is destroyed but you rebuild or buy a new home within two years, plan on repaying the tax credit. Even foreclosure or short sales may be subject to repayment terms contingent upon the amount of profit (if any) derived from the sale and the terms of the contract. In fact, it appears the only way out of paying back the tax credit is to die or get divorced and force your ex to take on the full amount of the repayment. Real estate investors and agents need to be aware of the repayment requirements in order to best inform current homeowners of all costs associated with selling either via short sale or traditional. In many instances, given the declining values in cities across the nation, even slim profits will be reduced by the need to repay the tax credit making short sale deals even more desirable than ever. Check out more articles here:
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