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My wife and I received the full $8000 first-time homebuyer tax credit when we bought our home in April 2010, but we're now planning to move. According to the IRS, since we've lived here for less than three years, we would have to pay back the full credit:

Generally, you must repay the entire credit for the year you sell the home or it is no longer your main home. There are some exceptions to this rule, however, and you do not need to repay the FTHBC for a home you purchased in 2009 or 2010 if it remains your main home for the three years after the purchase.

However, they go on to say:

If you sell your main home to an unrelated person or entity, you repay the credit only up to the amount of gain, if any, on the sale. Note: when calculating gain or loss on your main home if you received the credit, you reduce your basis by any remaining amount of the credit.

I take it this means our "basis" is the purchase price of the house minus the $8000 credit. But if we're only required to repay up to the amount of gain on the sale of the house, does that mean that we don't have to repay anything if we sell it at a loss? In other words, if we sold it for less than the basis?

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Yes, if you sell it for less than the basis (i.e.: genuine loss, at arm's length transaction), you're not required to repay. I would speculate (without any basis) that it would raise a flag for a potential audit, since the prices have since then gone up in many of the markets, but if you're genuinely selling at a loss at a market price without any relations to the buyer - you should be fine.

  • Thanks - I ended up finding an example on the IRS' site where they show how it works. You're correct; the basis is the price of the house minus the credit, and you repay the difference between the sale price and the basis. So if you sell for less than the basis, you don't owe anything. – daGUY Apr 20 '12 at 20:55

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