How and when do I repay the 2008 credit?
Repayment of the 2008 credit, which was actually an interest-free loan, is paid as additional tax when you file your federal income tax return.
The payments are made in equal parts over 15 years starting with the filing of your 2010 tax return.
If you received the full $7,500 credit, your annual payment is $500 per year. (Married couples who filed jointly are each responsible for $250 of repayment for a total of $500 annually).
If your credit was less than $7,500, your annual payment is 6.66% of the total credit.
The payment is added to your tax bill or subtracted from your tax refund each year, depending on your circumstances.
TurboTax will calculate your payment as part of your tax return.
What if I no longer use the home as my primary residence?
In many cases, but not all, you are required to repay part or all of the balance owed.
The payment is included as part of your tax return for the year in which you stopped using the home.
Events requiring partial or full repayment of the credit ahead of schedule:
- You turn the home into a rental or began using it for business rather than as your primary residence.
- You sell (or give up the home in foreclosure) to someone not related to you and had a gain on the sale. (Why must the sale be to someone not related to you? To avoid manipulation of the price and ensure the transaction is a bona fide sale, not a gift.)
- You sell the home to a related person.
- Your home is destroyed and you don't plan to acquire another one within two years of the event. You must include all remaining installments as additional tax on the tax return for the year in which the two-year period ends.
Events that could reduce or eliminate repayment:
- You sell your home or stop using it as your main home to fulfill U.S. government orders for a qualified official extended duty service. If you or your spouse is a member of the uniformed services, Foreign Service or an employee of the intelligence community, you do not need to repay the credit.
- You sell the house (or give it up in foreclosure) to a person not related to you, and have no gain on the sale.
- You transferred the home to your ex-spouse as part of your divorce settlement. Your ex-spouse is responsible for repaying the credit.
- The taxpayer who received the credit dies. No repayment is required. If you claimed the credit on a joint return for 2008, and your spouse dies, your spouse's remaining half of the credit does not have to be repaid.
No change to payment schedule if:
Your home is destroyed and you acquire or plan to acquire another main home within two years of the event.
You would continue to repay the balance of the credit in 15 annual installments starting with the 2010 tax year.
Who counts as a "related person"?
Your spouse, your ancestors (parents and grandparents), or lineal descendants (children and grandchildren), as well as your spouse's ancestors or lineal descendants.
How will the IRS know I sold my home?
The agency will rely on third-party information and taxpayer self reporting.