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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1707
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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If I purchased a home in March of 2010 under the first time

Resolved Question:

If I purchased a home in March of 2010 under the first time homebuyer tax credit of $8000 and received that credit, I understand that I am to keep the property as my principal residence for 36 months. Our 36 months will be ending the third week of March 2013. I am wondering a few things:
1. after the 36 month period am I permitted to turn it into a rental without paying back any tax?
2. If we were to move out 6 weeks early and thus rent it 6 weeks early, how much of the tax would be owed? When would it be owed?
3. If we do as I just described in #2, is there any way for it to still be considered our primary residence for those 6 weeks?

Thanks.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
1. after the 36 month period am I permitted to turn it into a rental without paying back any tax?
Yes - you may convert the property to rental. If such conversion will take place after after the 36 month period starting your purchase date - means the property were your primary residence at least after the 36 month - you are not obligated to repay the credit.
2. If we were to move out 6 weeks early and thus rent it 6 weeks early, how much of the tax would be owed? When would it be owed?
If the property is converted to a vacation or second home or rental property (not your primary home) within 36 month period - you are required to repay the entire amount of credit. Thus - if you received $8000 credit - the full amount should be repaid.


3. If we do as I just described in #2, is there any way for it to still be considered our primary residence for those 6 weeks?
The property may not be considered your primary residence if you do not live there.


There are exceptions to the repayment rule. The most common exception is when the home ceases to be your main home. (Death, the sale or transfer of a home and divorce also can affect someone's remaining annual installments.)

Expert:  Lev replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lev replied 1 year ago.
It was reported that some customers cannot view the answer in the chat.
I am re-posting the answer and switching to Q&A mode.
You may continue asking questions - but in different mode.

Hi and welcome to Just Answer!
1. after the 36 month period am I permitted to turn it into a rental without paying back any tax?
Yes - you may convert the property to rental. If such conversion will take place after after the 36 month period starting your purchase date - means the property were your primary residence at least after the 36 month - you are not obligated to repay the credit.
2. If we were to move out 6 weeks early and thus rent it 6 weeks early, how much of the tax would be owed? When would it be owed?
If the property is converted to a vacation or second home or rental property (not your primary home) within 36 month period - you are required to repay the entire amount of credit. Thus - if you received $8000 credit - the full amount should be repaid.
3. If we do as I just described in #2, is there any way for it to still be considered our primary residence for those 6 weeks?
The property may not be considered your primary residence if you do not live there.
There are exceptions to the repayment rule. The most common exception is when the home ceases to be your main home. (Death, the sale or transfer of a home and divorce also can affect someone's remaining annual installments.)
Expert:  Anne replied 1 year ago.

Hi

 

Different expert here.

 

Although its true that you could sell your home after 36 months without having to re-pay the credit (as long as you sold it to a non related party) if you convert the home to business property (such as rental property) you will have to repay the credit in full. Please see below:

 

First-Time Homebuyer Credit

 

 

Please be sure you scroll down to the chart re: when you must repay the credit.

 

 

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

Customer: replied 1 year ago.
So this indicates that we can never turn the property into a rental.... Ever... Without paying the tax back???
Expert:  Anne replied 1 year ago.
No, however, you must live in the home as your primary residence for five consecutive years before you can convert the property to business (rental) in order to not have to repay the credit. This does not have to be 5 calendar years, but 5 full years from the time you purchased the home.

Again,I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.
Customer: replied 1 year ago.

Well, that is very bad news for us and our plans. We had been waiting the last 6 months with this deadline in mind and now seems as if we will need to sell instead of rent which means we have wasted our funds for the last 3 years.


In selling, we will be in a short sale situation. Can you please detail how a short sale would work if it were to sell before the end of march? How much is the max we can sell for without paying back the tax credit? We paid a sales price of 189K for it.


 


 

Expert:  Lev replied 1 year ago.

Please see fro reference - http://www.irs.gov/uac/First-Time-Homebuyer-Credit-Questions-and-Answers:-Repaying-the-Credit

 

Q. When must I pay back the credit for the home I purchased in 2009?

A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009, 2010 or early 2011. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased to be your principal residence.

 

So far.

--- The obligation to repay the credit arises ONLY if the home ceases to be your principal residence within 36 months from the date of purchase. If you convert the home to business property (such as rental property) AFTER 36 month period NO need to repay the credit.

The statement that you must repay the credit after 36 month period is simply not correct.

Expert:  Anne replied 1 year ago.
Hi

Please note that even in the link the above expert provided, there is a section entitled:

When do I repay the full credit?

One of the circumstances is:

You converted the entire home to a rental or business property.


As for doing a short sale, as long as you are not in foreclosure, and if you lived in the home the full 36 months, then you will not have to pay back the credit.

Again,I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

I truly hope this information is helpful but please do not rate until you are satisfied. If you want to click on 1 or 2 just click on the continue to work with me button instead. You will then be able to add any other info or respond to what I have posted so far. Rating 3-5 gives me credit and a good rating but you can still converse with me.

Customer: replied 1 year ago.

Ok, so how does this work if I have different interpretations from different experts? Is there a sure fire way for me to find out? I of course would like it to be Lev's interpretation, but I see why Anne interprets it the way she does.


 


If Anne's interpretation ends up being correct, I have another question. If we turn it into a rental before 36 months, how is the credit to be paid back? Lump sum or over 15 years?


 


If we turn it into a rental after 36 months, how is the credit to be paid


back? Lump sum or over 15 years?


 


Also, how will the IRS know that we have "left early" or turned it into a rental? Will they contact me telling me I owe or is there some documentation I need to fill out?


 


 


Thank you both for your help.


 

Expert:  Anne replied 1 year ago.
I would like nothing better than to tell you that you can convert your home into rental property after 36 months, however, the first link I sent you,

First-Time Homebuyer Credit

is directly from the horse's mouth, the IRS, and their chart was very specific.

 

In both circumstances (turning the property into rental either before OR after the 36 months) you will have to pay the credit back in a lump sum in the year that you convert the property.

 

As for the IRS knowing that you either sold early, or that you converted it to rental property:

 

1-you had to include the HUD statement to get the credit, that means that the IRS has the address of your property. so if you sell the property, it will be recorded with the Register of Deeds.

 

2- if you convert the property to rental, you must include the address of the rental property on the form 1040 Schedule E..

 

Although the IRS will eventually get these reports, the fastest way that the IRS will be notified is via your change of address at the post office.

 

 

I understand that you may be disappointed by the Answer you received, as it may not necessarily be favorable to your situation. Had I been able to provide an Answer which might have given you a successful legal outcome, it would have been my pleasure to do so.

Customer: replied 1 year ago.
Ok so if we turn it Into a rental and the lump sum is due and we don't have the money then it becomes a repayment plan with the IRS just like taxes? Interest involved? Oh and where did u find the 5 year stipulation. For turning it Into a rental without prepay. I see in the chart "turn Into rental" but nothing about 5 years.
Expert:  Lev replied 1 year ago.

If the property is converted into rental AFTER 36 month period - you are not required to repay the credit. The information you were given is not correct. You will ONLY have to repay the credit if the property is converted to rental in less than 36 months. As you are not selling the property the 5 year stipulation is NOT related to your situation.

To avoid speculations - I suggest - simply call the IRS and confirm.

Here is the number to call - _1_800_829_1040_

Expert:  Anne replied 1 year ago.
Hi

All of the experts here do their very best to insure that the customer receives the correct information. Sometimes there are honest disagreements (IRS codes are not always easy to interpret) and sometimes one of us just reads it incorrectly, and that is what happened here. I was the one that read this incorrectly this time. This is a fairly rare situation, but it does and did happen.

Lev's answer to you re: not having to pay back the first time home buyer's credit if you live in the home for at least 36 months is correct, even if you make this rental property.

Please accept my sincere apology, and accept Lev's answer, and please come back to Justanswer if we can help you in the future.
Customer: replied 1 year ago.
Wow! Thanks! Thanks for determining your mishap and admitting it! I am just glad because that is the news I hoped for! Thank you both!
Expert:  Anne replied 1 year ago.
You're most welcome. Admitting an error is never easy......but the experts here are all committed to give the customers the correct information.

Thank you for your understanding.
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1707
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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