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The first-time homebuyer credit for homes purchased in 2008, with few exceptions, must be repaid over a 15 year period and takes the form of a $7,500 interest-free loan. What happens if the home is sold or no longer is your primary residence? In this instance, the repayment may be due in the year that chance occurs as referenced in IRC Section 36.

homebuyer-creditIs the repayment limited if I sell to an unrelated party?
Possibly. The tax increase due to accelerated repayment is limited to the amount of gain (if any) from the sale. To determine the gain for this purpose, a taxpayer must reduce the adjusted basis in the home by the amount of the first-time homebuyer credit that has not been repaid. This means that if you had a loss, you would reduce the basis in the property.

What if there is an involuntary conversion of the home?
In this case, the accelerated repayment requirement does not apply if a taxpayer purchases a new primary residence within two years from the date when the disposition or the cessation of use occurs. The general repayment rules apply to the new principal residence as if it were the converted home.

What if the taxpayer passes away?
If a taxpayer dies during a repayment period, no credit repayment is required for the year of death or any subsequent taxable year.

How is the credit repaid?
To repay the credit, the taxpayer must increase the Federal income taxes by 6 2/3% (or 1/15) of the amount of the credit for each taxable year in the 15 year repayment period. The repayment period begins with the second taxable year following the year of qualifying home purchase.

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