An IRS Notice Strikes Fear Into the Hearts of Many

I got one of those dreaded notices from the Internal Revenue Service yesterday. As soon as I pulled the mail from the mailbox, I recognized the dastardly logo, which is some crazy concoction of half an eagle, the scales of justice and an olive branch.

The last time one of these notices arrived, I was on the hook for $175 in unpaid taxes because I didn’t realize I’d crossed the tax-free threshold for book royalties. I paid the bill immediately, but it still struck fear in my heart to know I’d drawn the attention of a governmental agency known from auditing tax returns. And obviously, mine had been audited.

That was seven years ago. Fast forward to Election Day 2010, a holiday where the mail is delivered but garbage isn’t picked up (go figure). That same ominous IRS logo made another appearance in my mailbox. Filled with trepidation, I opened the envelope, mentally bracing myself for the latest reprimand.

“Courtesy message about your First-Time Homebuyer Credit,” it stated at the top of the single page. All that panic just for a notice that lets me know that our homebuyer credit, which we received as a credit on our 2009 tax return, doesn’t need to be repaid as long as our home serves as our primary residence for at least three years after our purchase. Whew. That won’t be a problem, as we have no plans to move anytime soon, if ever.

When You’d Have to Pay Back the Credit

If you want to know what factors can force you to have to repay that $8,000 credit, the IRS notice breaks those down, too. They all stem from one main factor, that the home is no longer your primary residence.

This can mean the house is:

  • Converted for rental or business use
  • Repossessed or abandoned
  • Sold
  • Becomes a “second” home, such as if you buy another home and spend the majority of the year living elsewhere.

If any of these things occur within three years of the purchase of your home and you claimed the First-Time Homebuyer Credit, say sayonara to that cool $8K.

And unlike the previous $7,500 first-time homebuyer credit, which was really a loan that must be repaid over 15 years, the $8,000 must be paid back immediately and in a lump sum when you file your tax return in the year the home ceased to be your primary residence.