T Nation

Home Credit Question


#1

I am not sure if this would be something for mortgage brokers or accountants. We purchased our first home in 2008 and received the $7500 tax credit for first time homebuyers that was available. This credit requires repayment, $500/year for 15 years.

We are preparing to sell our home and we stand to make a profit but we still owe $5000 on that tax credit which, as far as we know, must be paid in full after the sale of our home.

Our current accountant has stated the $5000 amount can be reduced if we can provide proof of any upgrades we have made to the home and that costs associated with selling the home (e.g. repairs, closing costs, inspections) can also reduce this amount.

We have not been able to find anything else that substantiates what he is telling us and the amount we walk away with from this sale impacts our price range for our next purchase. Is he giving us the truth, half-truth, or feeding us a line?


#2

?If you sell your home, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. Taxpayers are urged to consult a professional to determine the tax consequences of a sale.

From:http://www.irs.gov/uac/Tax-Credit-to-Aid-First-Time-Homebuyers;-Must-Be-Repaid-Over-15-Years

So, yes, he is right, if the expenses put you in a loss position on the home in excess of the remaining credit you owe. Which won’t effect your cash in hand, as that will be what you sell for in excess of your mortgage.


#3

Thanks, Beans, it sounds like good news then. We’ve made probably about $4,000 worth of improvements on the home and we will need to have two slabs in the driveway repoured and a downspout redirected at the buyer’s request. We are also paying $4500 for their closing costs. All in all that should put us well above the $5000 we owe on he credit and even the $7500.

I was of the understanding we wouldn’t have to pay on the credit until the following tax year but we want to be sure we have the $5000 wrapped up. So we probably won’t count that into our down payment regardless just in case shit hits the fan.


#4

[quote]BeefEater wrote:
Thanks, Beans, it sounds like good news then. We’ve made probably about $4,000 worth of improvements on the home and we will need to have two slabs in the driveway repoured and a downspout redirected at the buyer’s request. We are also paying $4500 for their closing costs. All in all that should put us well above the $5000 we owe on he credit and even the $7500.

[/quote]

no, no. That isn’t how it works, you’re confused.

Look at it like this:

Fact pattern a

  1. You paid 100,000 for your house plus improvements you just mentioned
  2. You sell it for 135,000

Fact pattern b

  1. you paid 100,000 for your house plus improvements you just mentioned
  2. you sell it for 90,000

In situation A you owe the rest of the payback on the credit. You made 35,000 on the sale of your home. You won’t pay tax on that sale if it’s been your primary home for two years and you haven’t sold one in the last 5.

In situation B you don’t owe the credit because you lost money on the sale, 10,000.

Make sense?


#5

Situation c
2) You sold for 99k

You still owe 4000 on the credit, Your loss of 1,000 reduced the amount you owe.


#6

Gotcha. I think where we got mixed up is that he was saying was even if we make a profit if our improvements plus cost of selling exceeded our remaining credit then it could be reduced or eliminated. I suspected that was incorrect. Then I am going to pretend that extra $5000 from our profit doesn’t exist for the purposes of our next down payment.