Your Tax Questions Answered
A Home Buyer Credit Meets Foreclosure
Kiplinger editorial director Kevin McCormally and fellow tax experts Peter Blank and Mary Beth Franklin tackle your most pressing tax challenges.
By Kevin McCormally, Editorial Director, Kiplinger.com
January 29, 2010
QUESTION:
I received the $8000 new homeowner tax credit, but had to file bankrupcy and surrender the house because I could not afford to keep it. I put the $8000 into the house -- now do I have to pay it back?
KEVIN ANSWERS:
Generally, if a house ceases being your principal residence within 36 months of the time you purchased it -- because you more out, sell, or lose it in foreclosure -- then the credit has to be repaid. But there's a big BUT. But, you never have to repay more than the profit you make on the home sale. It would be a quite unusual foreclosure to have a profit on a foreclosed home. Here's how the IRS says you figure if you have a gain on a foreclosure:
"Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements.)
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. "
In many states, mortgages are non-recourse loans. You may want ask your lender if yours was a non-recourse loan. If you had a loss on the foreclosure, you don't have to pay back the homebuyer credit.
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Reader Comments (10)
Posted by: Robert at 01/30/2010 10:13:03 AM
I have a C-corp business that bought a truck with our logo on it, for the business. I use it approximately 50% for business and 50% for personal use. How do I pay for and handle the deductible truck expense.
Posted by: Mike at 01/31/2010 12:54:57 PM
Is this a real question? This person got a tax credit for buying a home they could not afford? Have we learned nothing as to what got us into this mess? Who's pimpin' these transactions now? "Unscrupulous" banks or the US Govt.?
Posted by: just4cl@ymail.com at 01/31/2010 06:57:06 PM
If a spouse has an outstanding Fed tax lien, can they get the tax credit?
Posted by: S. Richardson at 02/01/2010 01:45:50 PM
We assisted our son with divorce cost in 2009. Is this deductible?
Posted by: Debi at 02/02/2010 12:39:32 PM
Our hot water tank burst during the night and kept dumping water all night- we had damages of 7800.00 but our insurance only paid 6200.00 Is the difference tax deductible as a loss?
Posted by: Dan at 02/02/2010 04:05:55 PM
How do I handle time share rental income of only one week per year? I have three weeks annually at my time share. I rent only the summer hot week each year usually but not always every year. A realtor rents the week for me for a commission (25% of the rental fee) I pay no property taxes on it. It is just rental income for one week and that rental amount varies from year to year.. Also what are the in's and out's of getting rid of this lifetime finance charge?
Posted by: pam at 02/02/2010 05:24:11 PM
we bought 9 acres for our horses and built a lean to on it . we also put a lot of money in the fencing. and had to pay to get electricity. is any of this expense deductible. thanks
Posted by: Brian at 02/09/2010 12:50:19 AM
I bought a main residence home on 09/19/2008 for $75,500, I took out a mortgage for $90000 (included all closing costs and an extra $7k for improvements), on my 2008 taxes I claimed the $7500 credit, I lost my job in June of 2009, put the house on the market and sold it for $113500, closed on the sale of the house on 09/22/2009. The cost was $98500, which gave me a balance of $15k. I moved out of state for work, The sale of the house was to a non relative, I was not sent a form 1099s from my morgtage lender, and I was able to not claim a capital gain because the profits were less than $250k (actualy $125k because I did not live in the house for two years, but qualify for the unforseen circumstances), The question I have is do I have to repay the $7500 "loan" because I did not have a capital gain on the sale. or does the exclusion not count towards the amount of gain for the repayment of the 2008 first time home buyer credit? Can not find any info on the repayment terms in regards to my question.
Posted by: Scot at 04/07/2010 01:42:04 PM
You posted an article about how you can write off the cost of baby sitting service IF it's used for the purpose of volunteerism where the charity is eligible, even though the money doesn't go to the charity. It claims it was based on a ruling of some sort. Where can i find the details on this, and what ruling established this as acceptable?
Posted by: tim copeland at 04/12/2010 01:20:28 PM
The only taxable income I have for 2009 is $1,112 in interest on some U.S savings bonds I cashed in. Do I have to file?