Does the $8000 Homebuyer Tax Credit Need To Be Repaid If I Sell My House?

by Keith Landis on January 7, 2011

The $8000 tax credit that expired last June placed a lot of new homebuyers in their very first house.  Most of these first time buyers probably planned on owning these homes for years and years to come.

We all know that sometimes life gets in the way of even the best laid plans.  Unexpected life events such as a job transfer, divorce, or financial difficulty can cause a homeowner to sell their newly acquired home before they planned.  One of the key stipulations to the $8000 tax credit was that the homeowner had to live in the property as their primary residence for 3 years.

So what happens when this 3 year requirement can not be met?

It depends on a few factors and here is what they are…

  • If the home is sold for a gain within 3 years to a non-relative, all or a portion of the tax credit will be repaid.  The amount of tax credit in excess of this gain does not have to be repaid. For example, if you sell the house and net a $10,000 gain, the full $8000 tax credit would need to be   repaid.  If you sell the house and net a $5000 gain, $5000 of the tax credit would need to be repaid.  You would not have to fork over the additional $3000.
  • If the home is sold for no gain within 3 years to a non-relative, the tax credit will not be repaid
  • If the home is sold to a relative within 3 years, the entire amount will be repaid.
  • If, through death or divorce, the property is transferred from both spouses to one spouse, the spouse who remains in the home must follow the 3 year rule from purchase date or the above repayment scenarios would apply.

If any of these possibilities apply to you, make sure to thoroughly review the IRS guidelines on the tax credit repayment and consult your tax professional.  The IRS tax forms for calculating your possible repayment can be found here www.irs.gov/pub/irs-pdf/f5405.pdf.

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