What Happened To the First Time Home Buyer Tax Credit?
One of the biggest ever federal incentives for people new to home ownership, the first time home buyer tax credit was a program created in 2008 under the Bush administration. This tax credit gave new homeowners up to $7500 or 10 percent of the purchase price, whichever was lower. However, no new filers will be able to claim the first time home buyer tax credit in 2012. What happened to the credit, and why isn't it being brought back with foreclosure rates still high and interest rates still low? We'll take a look in this brief guide.
When Was the First Time Home Buyer Tax Credit Available?
People buying homes for the first time in 2008-2010 were able to take advantage of the first time home buyer tax credit. This tax credit was created in order to stimulate home ownership in the United States after housing prices collapsed.
For a very small number of families, purchases made in 2011 also qualified for the first time home buyer tax credit. Some military and intelligence community members were also allowed to include purchases made in 2011, because some of them may have been enlisted at the time when the credits were available for first time homebuyers.
Triggers for Repaying your First Time Home Buyer Tax Credit
You may have to repay the tax credit if you sell your home or no longer consider the home your primary residence depending on the year you received the tax credit in the first place. Repayment scenarios are provided below:
Bought Home in 2008 and Received First Time Home Buyer Tax Credit
If you sell the home to a related party in the next 15 years after you bought the home, you need to repay the full credit minus any amount you already repaid. Complete Form 5405 and attach the form to your federal tax return for the year the home was sold. The repayment is required even if you suffered a loss on the property.
Bought Home in 2009 or 2010 and Received First Time Home Buyer Tax Credit
If you sold the house to a related party within 36 months of buying the house, you need to repay the full tax credit. Complete Form 5405 and attach the completed form to your federal tax return for the year you sold the home. The repayment will either increase the taxes you owe or reduce your refund.
Bought Home in 2008, 2009, or 2010 and the Home was Destroyed or Condemned
If the home was destroyed or condemned and you did not replace, rebuild, or buy a new home within two years, you need to repay the full First Time Home Buyer Tax Credit. Complete Form 5405 and attach the form to your federal tax return for the year the two-year grace period ends. You’ll have to complete Form 5405 and attach it to your federal tax return to during the year of the destruction or condemnation in order to report the damage as well.
Bought Home in 2008, 2009, or 2010 and Converted Home to Business or Rental Property
If you converted the home to a business or rental property, you need to repay the unpaid balance of the First Time Home Buyer Tax Credit. Complete Form 5405 and attach the form to the federal tax return for the year the home was converted to a rental or business property.
Why Did the Tax Credit Expire?
While the first time home buyer tax credit was a good benefit for people who could already afford to purchase a house, the fact that it took until taxes were due to receive the benefit made it less useful for people who had trouble putting together a down payment. The credit had to be repaid if you sold the house before it was paid off if you purchased a house in 2008, a major hassle for any buyer and one that may cause problems for some taxpayers for years to come. In 2009 these restrictions were lifted and the credits no longer need to be repaid.
Initially, the tax credit was extended in the Worker, Home Ownership, and Business Assistance Act of 2009. Not only was it extended in duration to include homes bought in 2009 and 2010, but it also expanded income limits for the credits and allowed a credit of up to $6500 for people buying a home who were not first time homebuyers.
Will There Be Another First Time Home Buyers Tax Credit?
The problem with the tax credit was simply that it didn't do enough to stem the tide of foreclosures and stimulate the housing market. The credit ignored the economic realities for most first time homebuyers and focused too much on giving a tax payment rather than making credit or down payment assistance available for people affected by the recession.
Today, there is no one in Congress seriously proposing that these tax credits be re-established. Without credit being made available by banks and an improvement to the problems of underemployment and unemployment, the tax credit was benefiting few people and was not making a significant impact on housing prices or foreclosure rates.
Questions about the Tax Credit
If you have any questions about the tax credit for your home, you can call (800) 919-0352. You can also consult with a tax return preparer and have them contact the IRS if needed.