Nearly 1.8 million taxpayers claimed a total of almost $12.5 billion under the popular first-time homebuyer tax credit program, but more than 950,000 taxpayers will be required to repay the credits because their homes were purchased in 2008, according to a U.S. Treasury report released recently.
And many more may have to repay the credits “if the homes cease to be the primary residences of the taxpayers within 36 months,” according to the report released by the U.S. Treasury Inspector General for Tax Administration (TIGTA).
TIGTA said the Internal Revenue Service is improving its methodology to more precisely determine how many have to repay the tax credits.
Nonetheless, the announcement will come as a shock to taxpayers who purchased homes to take advantage of a program meant to revitalize the depressed housing market.
The Housing and Economic Recovery Act of 2008 created a new “First-Time Homebuyer Credit” equal to 10 percent of the purchase price of the home, limited to a maximum amount of $7,500. But that original credit served as an interest-free loan that must be repaid over a 15-year period. The following year, the homebuyer tax credit program was expanded and converted into a full credit that does not have to be repaid.
TIGTA’s study found that an estimated 73,119 (4.1 percent) of the approximately 1.77 million individuals receiving the tax credit “had incorrect purchase dates recorded at the IRS.”
The report also found that $10.1 million in homebuyer credits were claimed by 1,326 taxpayers who were identified as deceased by the Social Security Administration. The IRS did not allow 528 of those individuals to receive more than $4 million of the credit that was claimed.
Tax Tips for Homeowners
Attention homeowners! Over a million Americans overpay their taxes by an estimated $945 million every year. Here are the top tax deductions, in no particular order, that you need to know about:
- Mortgage Interest. This is usually fully tax-deductible, and applies to multiple mortgages as long as it doesn’t exceed $1 million.
- Home Offices. Do you work from home? Qualified home offices have tax deductions for the maintainence of that portion of the home. That includes painting, upkeep, and even indirect expenses like garbage pickup and utilities. Of course every situation is different, so be sure to check with a professional tax advisor before deducting these expenses.
- Private Mortgage Insurance (PMI). If you bought your home after January 1st, 2007, and have an adjusted gross income under $110,000, you can claim the PMI you’ve paid throughout the year.
- Points. Did you pay points to lower your mortgage rate on your refinance or purchase last year?
- Moving Expenses. Homeowners who had to move over 50 miles for a new job can write off the cost of the move, household goods, vehicles, and other directly related expenses.
- Vacation Homes. Now is the cheapest time to buy a home, so if you already have your dream home, it may be a good idea to get a vacation home. You can deduct real estate taxes, personal property taxes, mortgage interest, and points from your vacation home.
- Property Taxes, State Taxes and Local Income Taxes. Some cities/towns/or municipalities have local income taxes that are deductible, and property and state taxes are usually deductible as well. If you don’t think you pay property taxes, it might be rolled into your mortgage payments, so be sure to check old records, and deduct that too.
- Home Buyer Tax Credit. This is probably the best deal out of the list. Ending on April 30th (which is when you need your purchase agreement signed by), this tax credit is for any first time buyer or existing buyer if you’ve been in your old house for over 5 years.
- Health-Related Improvements. If you have a chronically ill or disabled person in your home, home improvements made for medical purposes (that do not add value to the overall home) can be tax deductible.
- Capital Gains with No Income Taxes. Did you sell a home last year? If so, the government will let you realize a tax exempt profit of up to $250,000 once every two years, so be sure to check your records.
As always, you should check with your tax advisor to determine which of these deductions apply to you.
Pending Home Sales Showing Improvement
Recent data finds that pending home sales are holding steady over the past couple of months, while indicating that market conditions have improved considerably since the height of the recession.
According to the National Association of Realtors, its pending home sales index increased to 96.6 in December, marking a 1 percent improvement over November's figures. The December figures marked a 10.9 percent year-over-year improvement, indicating that while the market remains shaky, it has gained considerable momentum in the aftermath of the recession.
NAR also noted that sales had fallen by a 16.4 percent margin – with the market fluctuations due largely to buyers trying to take advantage of the federal homebuyers tax credit that was extended at the end of 2009.
The Northeast and western regions of the country have seen the strongest sales growth, with a respective 14.9 and 18.6 percent growth rate.
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