The 2008 First Time Home Buyer Credit: A Bit Misleading, To Say the Least

Ever been given a gift and later found out you'd have to give it back down the line? Or has a relative or friend ever given you money that you thought didn't have any strings attached, and then you later found out it was a loan, albeit with no interest, that you were going to be expected to pay back at a later date? Well, that seems to be what our friends in Congress had in mind with the 2008 First Time Home Buyer Tax Credit of $7,500. Admittedly, most of America may have already known about this, but my wife and I didn't learn of it until we were doing our taxes last night.

My wife was using Turbo Tax to work on our 2008 return. This past fall, we were fortunatte enough to finally be able to buy our first home. When she got to the part about the First Time Home Buyer Credit, she mentioned that it said something about us having to pay it back starting in 2010. I told her to go ahead and finish the taxes, figuring there was nothing we could do about it, and figuring maybe she was mis-reading something, but I admit I was intrigued. I mean, I'm a news and politics junkie...I watch Fox News constantly, follow politics constantly, and have followed what's been going on with the economy for quite some time. One of my favorite uncles started teaching me to stay informed back when I was in high school, right around the time Clinton was elected. I'm glad he did, or I might have ended up a liberal, or worse. But I diggress.

So, I did some digging, and found this article on the IRS website, describing the ins and outs of the tax crredit for 2008. Among other bits of information, it says:

Recapture of credit
If a first-time homebuyer credit is allowed to a taxpayer, the taxpayer's income tax is increased by 6 2/3% of the amount of such credit for each taxable year in the 15-year "recapture period." The recapture period begins with the second taxable year following the year of purchase for which the credit is taken.

For example, if a taxpayer is allowed a $7,500 first-time homebuyer credit in 2008, the taxpayer must recapture the credit amount by adding $500 (which is 6 2/3% of $7,500) to his income tax liability each year for 15 years, beginning in 2010.

Acceleration of recapture
If a taxpayer disposes of the principal residence for which a first-time homebuyers credit was allowed (or ceases using it as a principal residence) before the end of the 15-year recapture period, the remaining credit repayment amount is added to the income tax liability of the taxpayer for the year of sale or cessation of use.

Exceptions to recapture
In the case of a sale of the principal residence to an unrelated person, the increase in tax due to accelerated recapture is limited to the amount of gain (if any) on such sale. For purposes of calculating gain, the adjusted basis of such residence shall be reduced by the amount of the first-time homebuyer credit allowed, to the extent not previously recaptured. In the case of an involuntary conversion, recapture is not accelerated if a new principal residence is acquired within a 2-year period. No amount is recaptured after the death of the taxpayer.

In short, this tells me that they're going to take $500 per year for the next fifteen yearrs starting in 2010, unless I sell the house...Then they want it all right away. But if I die or sell the house for a loss, I'm okay.

My purpose in writing this is two-fold. First, if anyone reading this, or any of your friends have purchased a new house and qualify for this credit, let them know what's coming so they're not as surprised as we were. I can't imagine I'm the only American homebuyer who didn't see this one coming. My mortgage broker called me the other day to see how things were going and said nothing about this part of it, and he's a pretty smart guy, so I'm willing to bet that he probably didn't know about this "rrecapture" business either.

Second, in my personal opinion, this seems wrong. Obviously, the feds, especially when the Democrats are in control of the House and Senate, have shown that they can do what they want to the American people. But this one just seems a bit stinky. I've never seen any other tax credit that is then ttaken away from you in the form of a "recapture" starting a couple years later. I'm not trying to complain or whine, but this rreally doesn't seem ethical to me. I work hard for my money, I finally had the opportunity to buy a house. I feel I give the IRS enough of my money each yearr, so I'm certainly happy to get the tax crredit for buying my first house...But don't give it to me, and then like a mafia loan shark, minus the interest charge, keep coming back for the next fifteen yearrs and taking it back bit by bit. It begs the questions: Why did you give it to us in the first place? Do you really think it's going to do that mucch to stimulatte the economy? And finally, what kind of fools do you take the American people for?

In closing, it wouldn't have made it right, but I would've rather seen a bit more transparency on this one. Give us the info up-front on the news. The Congress, or [then] President Bush, should have come out and said "We're giving you this tax crredit. We hope you'll use it to help stimulate the economy. However, in 2010, we're going to start taking it back, piece by piece, until we've recovered all that we've given you."

Maybe it's too late on this one, but if you ffeel so inclined, go to house.gov or senate.gov and find out who your representatives and senators are and write them and let them know how you feel about the government giving a tax credit, and then slowly taking the money back. Maybe we can get this portion of it reversed. Or maybe, the next time they reward someone for buying their first home, that person will get to keep all of his/her tax crredit and not have to worry about it being yanked out from under them a couple yearrs later.