With the Housing and Economic Recovery Act, the government provided an incentive that allowed some first time homebuyers to purchase homes they otherwise wouldn’t in a troubled economy. Two years after such incentives were implemented through tax credits, Bill Bischoff of Smart Money raises an interesting question: do these homebuyers have to repay their credit?

Bischoff first gives a rundown the homebuyer tax credits. The first version allowed credit up to $7.500 “for individuals who bought a U.S. principal residence between April 9, 2008 and Dec. 31, 2008” without already owning one in the previous three years. The second version allowed tax credits between the dates Jan. 1, 2009 and April 30, 2010, increasing the credit to $8,000. The third, implemented between Nov. 7, 2009 and April 30, 2010, offered credit up to $6,500 “to so-called longtime homeowners, which means those who had owned a U.S. principal residence for at least five consecutive years during the eight-year period ending on the purchase date for a new U.S. principal residence. “

Bischoff writes that those who received tax credits in 2008  are “generally required” to pay it back over a period of fifteen (15) years. Exceptions to this include if there is a loss on sale in certain circumstances, you or your spouse were required to relocate due to working in the military, your home is transferred to your ex-spouse in a divorce settlement.

The homebuyer does not pay back the credit with the fifteen (15) year installment plan if they claimed his or her credit through the second or third version. However, if that person either sold the house in 2010 or no longer uses it as the principal residence, then the homebuyer must either:

1.    repay the full credit or
2.    pay in the amount of the gain in sale (if any).

The decision between the two depends on which is lesser. If there is a loss on sales, homebuyers with the 2009 or 2010 credits do not have to repay them back.

*Any information on all blog entries should not be construed as legal advice. If you have any legal issues, please consult an attorney.