For those that took advantage of the first-time home buyer tax credit in 2008, you still need to repay the IRS back over time.

Q: I bought a home in April, 2008 and took advantage of the $7,500 home buyer tax credit. My understanding is I will have to pay back the full amount to the IRS unless I sell the home and take a loss on the sale. Am I correct on this?

I would also like to know if you think this payback will change anytime soon since the $8,000 tax credit was not a loan for those lucky enough to have bought their homes one year later. Love your radio show.

A: It’s been about four years since home buyers were able to take advantage of the $7,500 first-time home buyer tax credit. This tax credit was a first attempt to entice buyers to purchase homes at a time when the housing market was collapsing. Unfortunately for those home buyers that were able to buy a home that year and take advantage of the tax credit, the $7,500 tax credit has to be paid back to the IRS over time.

The next year, the housing market worsened. If you bought a house in 2009, and qualified for the either of the home buyer tax credits, those tax credits did not have to be paid back unless the home buyer sold the home within a certain period of time.

Unfortunately, it does not appear that there has been a change in the tax law that would benefit you in the way you’re hoping. The IRS website still states that the $7,500 first time home buyer tax credit has to be repaid. You’re required to repay this credit at a rate of $500 per year over 15 years on your federal income tax return.

But it’s true that you won’t have to repay the tax credit if you sell the home and don’t have a profit on the sale of the home. You also wouldn’t have to repay the tax credit if you were to die. We’d certainly prefer that you sell your home and make money on that sale and repay the tax credit as a result of a good sale.

As many first-time homebuyers usually stay in their first home for five to seven years, many of the buyers that took advantage of the $7,500 first-time homebuyer tax credit will repay that home buyer tax credit when they sell.

We know that many home buyers feel it was unfair that the rules changed for 2009 and they got the short end of the stick. But imagine it had gone another way. Let’s say you bought in 2008 and got the $7,500 home buyer tax credit, which effectively functions as a zero percent loan. If the program ended, as scheduled, at the end of 2008, you would have felt pretty good about getting in before the program ended. And millions of other home buyers would have received nothing because they couldn’t act fast enough.

While you got a very good deal, you didn’t get the best deal, which was essentially an $8,000 gift from the American taxpayers to try and stem the tide of foreclosures and short sales. We don’t think you should be unhappy.

This housing depression is now going into its sixth year and overall, most homeowners (not to mention developers) have been on the losing end, with home prices depressed to levels last seen in 1999 or 2000.

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