One of the frustrating things from a tax professional’s point of view about the magically shifting world of tax credits and deductions on the whims of Congress is that it confuses taxpayers. For 2011, tops on the list of things taxpayers can’t understand is the disappearance of the Making Work Pay Credit. But second? Repayment of the first time homebuyer’s credit.
In case you’ve forgotten all about it, let me quickly refresh your memory. As part of the Housing and Economic Recovery Act of 2008 (HERA) in order to make the realtor lobby happy jump-start the economy, Congress passed a tax credit for first-time homebuyers. Taxpayers who had not owned a principal residence for the three-year period prior to the purchase of a new home were allowed a credit if they purchased a new home between April 9, 2008, and July 1, 2009. For qualifying taxpayers, the credit was up to $7,500 and it was refundable, meaning that if the amount to be refunded exceeded any tax liability, the overage would be issued to the taxpayer.
It wasn’t a freebie. The tax credit must be repaid over a 15-year period or when the house is sold if there is sufficient capital gain from the sale. Payments must begin two years after the credit is claimed, so taxpayers who take the credit in 2008 must begin repayment with the 2010 tax return and taxpayers who take the credit in 2009 would begin repayment on the 2011 tax return. The repayment is a straight line repayment over 15 years with no interest and is “paid” back via a federal income tax return.
But here’s where it gets confusing. In 2009, bowing to continued pressure from the realtor lobby by popular demand, Congress subsequently changed the terms of the credit. As a result, there were two sets of rules in effect for the first half of 2009. Since the change was made mid-year, taxpayers had the option of claiming the first time homebuyer’s credit under the 2008 rules or the 2009 rules. For almost all taxpayers, the 2009 rules were more advantageous because, under those rules, the credit did not have to be repaid.
What that means from a practical standpoint is that taxpayers are now scratching their heads trying to figure out whether they claimed the credit, which version of the credit they claimed, how much credit they originally needed to repay (if any), and how much credit remains unpaid.
It’s taken a bit but the IRS now has an online system available to help out: the First Time Homebuyer Credit Account Look-up. To use the system, you’ll need your Social Security number, date of birth, street address, and zip code. The system is supposed to allow taxpayers access to information about the balance of the First Time Homebuyer Credit; total amount of the credit; annual installment repayment amount and the amount paid back to date.
Supposed to. If it’s not working, you can call a special toll free number at IRS to access information about your account: 1.800.919.0352.
