If you are among those who received a tax credit of up to $7500 when you purchased your Jersey Shore home in 2008, you are now required to begin repaying that credit with this year’s tax return. The entire amount is payable in 15 equal annual installments.
The IRS is sending letters of explanation of the repayment procedure to all taxpayers who claimed the credit in 2008. Generally speaking, all first-time 2008 home buyers will need to pay an additional $500 on their taxes from 2010 to 2025, provided the house is not sold before then and remains the owner’s primary residence.
If you sell your Jersey Shore home before 2025, any profits will first go to paying back the tax credit in full. If you sell at a loss, the difference will be forgiven, although, as is typical with most forgiveness agreements, you must record that amount as income and pay taxes on it.
If, within 36 months after buying your home, the property is no longer used as your primary residence due to a divorce in which your spouse retains the house; conversion to rental property, a business, or a vacation home; or foreclosure, the full amount of the unpaid credit must be paid in full with the tax return for the year in which the change occurred. You will need to file IRS form 5405 with your return in this case.
Because individual situations vary, it is important for 2008 Jersey Shore home buyers to consult a qualified tax professional to make sure they are fulfilling all obligations of their purchase and subsequent credit.