Repayment of First Time Homebuyer's Credit

[jasdlm]

Clients bought the home in 2010. 2 years later, he got a better job and they moved 2000 miles away. They tried to sell the house (for much less than they bought it because the market crashed) and were unsuccessful. Eventually, they rented it so they could keep up with the payments and avoid foreclosure, as they have housing costs here (where new jobs are).

I can't figure any way around paying back the full $8,000, but it just seems unfair that if they could have successfully sold it (at a loss), they would have avoided the payback as a result of the substantial loss. (Yes, I get that they don't have the loss and still have the asset - they would rather have the loss - it is certainly not renting at a profit.)

I just wanted to make sure there wasn't anything I wasn't thinking about i.e. softening the blow of the $8,500 repayment.

Thanks.

d

[Seanr7]

Fair and tax laws seldom go hand in hand.

[Jack from Ohio]

If they converted it to rental, they owe the entire amount back.

It was FREE to begin with, with only a few requirements. It was not "fair" that they received it in the first place. They owe the "windfall" back because they did not fulfill the simple requirements.

Not a situation I have any sympathy for. Sounds like they bought an overpriced property and the FTHB credit was part of what convinced them to do it.

[jasdlm]

"Sounds like they bought an overpriced property and the FTHB credit was part of what convinced them to do it."

I believe you are absolutely correct on this one.

[Ray in Ohio]

I just wanted to make sure there wasn't anything I wasn't thinking about i.e. softening the blow of the $8,500 repayment.

Thanks.

d

$8,500?? I thought the max credit was $8,000.

[jasdlm]

Thanks, Ray. Typo.

[JohnH]

I had a very similar situation earlier in the season with a potential client. They rented the property to someone a month and a half before the holding period had expired. Looks like that first rent check cost them $8,000. I explained everything to them and they decided to just "do it themselves". Well of course I believe them - you needed to ask?.

Wonder how many preparers they had contacted before me, or if they've now figured out what not to tell the next one.

[jainen]

>>Eventually, they rented it<<

I would take a close look at dates and other details. The credit uses the same definition of "principal residence" as Section 121, which is no real definition at all. Under Section 121, renting while you are trying to sell is not "unqualified use." I believe when there are two homes the principal one is where they spent the most time during the tax year. You might not have to stretch those definitions much to reach 36 months.

It might not hold up on audit, but it might not need to and anyway Circular 230 doesn't let you consider that . So you only have to convince one out of three of us (although I've noticed a lack of sympathy in the forum lately). Even paying it back isn't so bad--it just means they got a two or three year loan at zero interest.

[kcjenkins]

And they did have another option, I bet. That was to sell it at a lower price. A bigger loss, but as noted, they could have reduced the price by up to 8K without losing anything more.