It’s been awhile since we’ve heard talk of the first time home buyer tax credit, but recently in our office it came up once again. No, there’s no new extension and no new credit to claim…instead the topic was, what happens if a homeowner sells their home before the three year occupancy requirement? Will the homeowner owe money to the IRS? (Please note: this post does not apply to the $7,500 tax credit from 2008 – this deals with the $8,000 tax credit from 2009 and 2010.)

For homeowners who claimed the first time home buyer tax credit in 2009 and 2010, the credit came with one caveat: you had to own and live in the home for a minimum of three years. As we are now in 2012, some homeowners are just beginning to hit the three year mark and questions are arising when they desire to sell their home.

If your three years have passed (three years from the closing date of your home purchase), you are free to keep the money from the tax credit and you owe the IRS nothing. For example, you would have had to have purchased your home in January of 2009 in order for your three year waiting period to be up January 2012.

What if you bought the home later in 2009 or somewhere in 2010? Based on today’s date (January 25, 2012), if you bought you home in late January 2009 or later, you’re still within your required three year ownership and occupancy period. Because of this limitation within the law, if you were to sell your home, you would have to repay the entire $8,000 tax credit back to the IRS (it would be added as additional tax to your next filing). If you had a zero balance when you filed with the IRS – you would now have an $8,000 tax liability due in full when you file!

If you do choose to sell within that three year period you will need to file a Form 5405 (the same form you used to claim the first time home buyer tax credit) with your returns. As with anything tax-related, we highly recommend you speak with a tax professional when filing or if you have questions. If you’re thinking of selling your home, be prepared to answer questions from your agent about when you bought it and whether or not you claimed the $8,000 tax credit – knowing this fact in advance can save any surprises down the road for you or your Kimberly Howell Properties agent.

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