FTHB Repayment cut in half

[Nashville]

I have had two clients (in last couple years) not tell me about having to repay the 2008 FTHB credit of $7500. Repayment is supposed to begin in 2010 at a rate of $500 per year for next 15 years. Of course, if they bought their house the next year, they would have received a larger credit and it would not have to be paid back. Most of the 2008 buyers were enraged bloodshot-red when this was announced. Nonetheless they knew and agreed to the rules.

Those two clients who didn't tell me they owed the payment had their refunds adjusted accordingly. However, the amount of adjustment was only $250.00, or only half of what they were supposed to repay.

Anyone know what's going on here??

As a side note, I will make the remark that well over half of my clients who took the FTHB money are now sorry they did. Some of them have divorced, some of them sold their home or moved, some have converted to rental homes. Now the 2008 crowd (and in some cases the 2009 crowd as well) are having to pay back. "Something for nothing" is nearly always something that turns into a Trojan Horse.

[JohnH]

I'll bet a HUGE number of 2008 buyers changed tax preparers by the 2010 filing season.

Coincidence? I think not...

[Maribeth]

My situation was just a little different but I believe that it all points to a glitch in the IRS computers regarding the payback of the FTHB credit.

My client purchased in 2008. Then sold and moved in 2010. He prepared his own return for 2010 and repaid the credit. HOWEVER, there is a box to check for each spouse on the form. He only checked the box for himself, not for his wife.

The next year, HRB does his return. His refund is shorted by $250. He does not do anything about it because he had a good refund that year and so it was not a big thing.

The next year he comes to me. I explain to him what happened in the 2011 return and does he want to amend 2010 or does he wish for me to get in touch with the IRS regarding the issue. No, he does not.

I prepare his return. Gets a letter from the IRS and now has to pay an additional $250. Now it is a big thing and of course it is all my fault.

Needless to say, I no longer have this client.

So, long story short, I believe there is a glitch in the IRS computers. I do not believe that the glitch has any priority in their system and that we will be dealing with this issue for some years to come.

[David1980]

The 2008 buyers probably blamed the preparer for not telling them about the 2009 credit. Like we'd know it was going to happen. Yes, obviously getting the credit you don't have to pay back is better than getting a credit do you have to pay back. Then again, if they bought in 2007 they'd have no credit at all. So I don't feel too bad for the 2008 crowd.

I would guess the $250 instead of $500 is due to them filing MFJ the year they claimed the credit? In which case, it'd be $250 for each spouse. Could it be the IRS system is only catching the repayment for the primary SSN. Either primary SSN on current return or the primary SSN on the 2008 return?

[Nashville]

$250 per spouse?

$500 split into a liability for each spouse? If so, I think it is a glitch like Maribeth does.

One of my instances is a couple who was married then, and is still married.

The other did divorce, and the ex-spouse left a quitclaim deed to the property. Under IRS rules, he bails out of the
responsibility of repayment.

I'm relieved to know others are noticing the same problem. I don't dare respond to the IRS or my client will suffer having to cough up another $250 just like the post above.

Allowing for this presumed "glitch" it will now take 30 years to pay off the credit instead of 15. Geez....

[JohnH]

Maybe 30 years to pay it off.
But more likely, at end of year 15 he will get a notice form IRS that he owes $4,000.

[Roland Slugg]

The unrepaid portion of the 2008 FTHB credit doesn't have to be paid back if the house is sold at a loss to an unrelated person. See the instructions for F-5405.