If you have recently purchased a home, you may qualify for a tax credit. This is a credit that is typically awarded to help you pay off part of your home. However, not everyone qualifies for this tax credit, nor may they be benefited by it, so it is important to understand exactly how the credit works and how it will positively or negatively affect you in the long run. Let’s take a look at some of the key things to consider in regard to the homebuyer tax credit:
Understand Your Limits
First, it is important to note that the tax credit you will receive is not unlimited. In many cases, you will only get about $8,000 dollars back for your tax credit. This credit is meant to be used to pay off your home more quickly than you otherwise could, so it is different from standard tax credits that you get each year—which can be used on just about anything. Second, if you sell the home before the loan amount is completely paid off, then you may have to pay back any tax credits that you have received for that home thus far.
Credit Repayment Exceptions
There are times when you won’t have to repay the tax credit at all, or if you do, you won’t be held responsible for the lump sum. Of course, it is truly up to the IRS to determine how much money you are or are not responsible for at the end of each year, but here are some things that may disqualify you from having to repay the credit:
- If your home has been transferred to a former spouse during a divorce settlement, then payments get transferred to the spouse as well, and you are no longer responsible for said credit repayment.
- In the event of a natural disaster or complete destruction of your house, you will not have to pay back the tax credit all at once. It will still need to be paid back at some point, but there will be a grace period for it—especially if you buy a new home within the next two years
In short, the homebuyer tax credit is something that is awarded to you to help you pay off your home in a timely manner, but it will ultimately need to be repaid to the IRS in installments or in one lump sum. Fortunately, there are limits to the amount of money you can get back in the credit, and there are credit repayment exceptions, so you won’t be repaying forever.
