Almost 1 Million Must Repay Homebuyer Tax Credit

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About 950,000 of the 1.8 million Americans who claimed the first-time homebuyer tax credit on their 2009 tax returns will have to return the money to the federal government, according to a report the Inspector General for Tax Administration released Thursday.

It’s not because the government needs the cash (even though it really, really does). These particular homeowners never actually qualified for the refund. Instead, they received an earlier credit that allowed those who bought properties during 2008 to deduct up to 10% of the home's purchase price or $7,500, whichever was less.  The fine print, however, said that this credit was actually a no-interest loan that had to be paid back to the government within 15 years.

It wasn’t until February 2009, when Congress first voted to extend the stimulus benefit, that it was changed to a refund. Initially to apply for this credit, homeowners must have made their purchase between Jan. 1, 2009 and Nov. 30, 2009. However, these dates were extended several times through separate legislation and currently, homebuyers have until Sept. 30 to close on their purchased properties.

The Internal Revenue Service is now working to enforce the difference between the two laws. But of course, the task will be more difficult than you think.  According to CNN, an earlier review conducted by the Inspector General found that the IRS could not easily distinguish between home purchases made in 2008 and 2009.

Additionally, the latest report stated that the IRS recorded the wrong home purchase date for about 73,000 buyers that claimed the credit, about 4% of all of those claiming the credit in 2009. About 60,000 of these claims were listed with 2008 purchase dates when the correct 2009 purchase date would have actually qualified them for the no-strings attached version of the credit.

According to the report, the IRS is correcting those errors so that there will be no adverse impact on taxpayers.

What else should you know about buying a home? Check out MainStreet’s  checklist for first-time homebuyers.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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