The Catch to the 2008 First-Time Homebuyers Tax Credit

The first-time homebuyers tax credit has been a bit hit. Much like the Cash for Clunkers program spurred on the auto market, this tax credit has been…well, credited with sparking action in the housing market. If you bought a house in 2008 using the tax credit, there is one big catch.

A tax credit is a beautiful thing. It is much more valuable than a mere tax deduction. How so? Tax credits are deducted dollar for dollar from the tax you owe Uncle Sam while tax deductions are merely used to reduce your adjusted gross income before you figure what you owe him from the tax tables. Most tax credits come without any catches, but the first-time homebuyers tax credit has a big one.

So, what is this catch? It is simple. If you used the tax credit in 2008, you have to pay the government back. That is one big catch! Let’s say you decided to make the leap and bought a home in November 2008. It was your first one, so you qualified for the credit. You claimed the full $8,000 on your tax return and use the savings to make the down payment on that new home. What a deal! Well, yes and no. You have to start to repay the tax credit in 2010. The repayment will be in 15 yearly installments and figured into your taxes. Ah, not such a deal after all, eh?

At this point, you’re probably wondering why I keep talking about 2008? The answer has to do with how the program was renewed for 2009. If you use the first time homebuyers tax credit to purchase a residence in 2009, you do not have to pay back the $8,000 tax credit. Yes, you read that right. People who used in 2008 must repay, but those who waited till 2009 do not. Welcome to the tax code!

Thomas Ajava writes for AmericanBarTaxAttorney.com - where you can find an American Bar tax attorney in your area who handles both business and individual tax issues.