950,000 Taxpayers Must Repay Homebuyer Tax Credit: Treasury

Homebuyer tax creditNearly 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 today.
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.
Adding to the confusion is a series of thousands of mishandled returns by the IRS, according to TIGTA.
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.”
Of those, 59,802 had purchased their homes in 2009, “but the IRS incorrectly recorded the purchases as 2008 or the years were not recorded,” TIGTA said. These taxpayers could incorrectly receive notices requiring repayment, TIGTA found.
“Going forward, it is imperative that the IRS ensure the comprehensive strategy being developed identifies taxpayers who erroneously or inappropriately received the Credit and are required to repay it,” said J. Russell George, the Treasury Inspector General for Tax Administration.
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.
To view the report, go to: http://www.ustreas.gov/tigta/auditreports/2010reports/201041086fr.pdf.

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