IRS Mistakenly Sends Homebuyer Credit Repayment Notices to Thousands

The homebuyer credits available to some taxpayers who purchased homes in 2008, 2009 and part of 2010, has caused administrative headaches for the IRS.  The Treasury Inspector General for Tax Administration (TIGTA) says the IRS has correctly processed the vast majority of homebuyer credit claims, but has also incorrectly handled notices sent to tens of thousands of taxpayers.  Some taxpayers who should not have received notices did, and some taxpayers who should have received notices did not .  Accounting Today has more:

(T)he IRS did not send notices or sent incorrect notices to 61,427 households due to programming errors or incorrect information on the tax accounts. Of those 61,427 households, 12,495 individuals were notified that they did not have to repay the Homebuyer Credit, when in fact they did have a repayment obligation; 27,728 taxpayers were notified that they had a repayment obligation despite having purchased their home in 2009 (only 2008 purchases have a repayment obligation); 2,152 individuals who bought their house in 2008 were incorrectly notified that they did not have a repayment obligation unless they sold their house; 18,220 did not receive a notice reminding them of their repayment requirement; and 832 deceased individuals may have been sent an incorrect notice regarding repayment.

The problem is that there are three different types of homebuyer credits, each with their own provisions for claiming them, and each with their own repayment or recapture provisions.  The original first-time homebuyer credit (of up to $7,500) for purchases in 2008 is supposed to be re-paid over 15 years.  Special rules apply if the taxpayer moves out before the 15 years are up.  Then the first-time homebuyer credit changed for 2009 and 2010 — it was increased to a maximum of $8,000 and does not have to be re-paid.  A “long-time homeowner” credit, of up to $6,500, was also added.

While technically neither the $8,000 first-time homebuyer credit nor the $6.500 long-time homeowner credit have to be repaid, there are “recapture” provisions that kick in if a taxpayer moves out within 36 months of purchase.  But there are exceptions to the recapture rules that taxpayers (and the IRS) have to be aware of.

Confused?  You should be!  And so is the IRS.  But before we criticize the IRS too much, remember — these complex laws are written by Congress, not the IRS.

  • Read more in Accounting Today.
  • Those of you who enjoy 33-page government documents (and you know who you are) can find the complete TIGTA report here.
  • Prior Dinesen Tax Times coverage of homebuyer credit repayment and recapture rules can be found here.