Payback Time.

It's Back! The worse tax credit/loan ever. Yes, the First Time Home Buyer's (FTHB) Credit is back. And even though we knew it was coming, it doesn't make it any less onerous to have to deal with. And now we will have to deal with this for the next 15 years.

Let's review. The first version of the FTHB was available for taxpayers who had not owned a home for the last 3 years. If they bought their home between April 8, 2008 and December 31, 2008, they could qualify for a refundable credit. The credit was 10% of the purchase price up to a maximum of $7500. And it wasn't really a credit. The FTHB "credit" was actually an interest free loan. By claiming the FTHB, the taxpayer agreed to repay it over 15 years beginning on their 2010 tax returns. The amount of repayment is the FTHB divided by 15. If the full credit of $7500 was claimed, the taxpayer will have to add a $500 repayment each year to their tax return for 15 years. The full amount of remaining credit has to be paid if they sell the house for a gain or stop using it as their personal residence. (If the gain on the sale is less than the remaining payback, the repayment is limited to the amount of the gain.) The other 2 versions of the FTHB did not have the repayment clause as long as you kept it your personal residence for 3 years.

While I haven't seen one yet, I understand that the IRS has started sending out letters to taxpayers who claimed the first round of FTHB to remind them that they will have to begin payback on their soon to be filed returns. Form 5405 will have to be submitted each year to document the repayment.

I am sure that many of those taxpayers didn't think this day would come. They hoped that Congress would stop the repayment before it started. After all, they didn't include a repayment clause in the second two versions of FTHB. And I am sure they will be little repayment from all the fraudulent claims (especially the ones from prison) But Congress didn't clean up their mess and honest taxpayers will pay the price. So the stupidest tax "credit" will be with us for a long time to come.

Comments

[Bob Shair]

You must be joking! A $7500 loan with no interest
is a really sweet deal.

People who resent others getting even sweeter deals should read the parable of the workers in the vineyard, Matthew 20:1-16.