Sep 09, 2010
IRS having trouble figuring out who has to pay back their tax credits
09 Sep 2010
Posted by Andrew Kantor
There’s a horribly written story from CNN that’s circulating all over. The headline is "Homebuyer tax credit: 950,000 must repay," and seems to imply that nearly a million people aren’t eligible for the tax credit they claimed.
But that’s not the story at all. Unfortunately, it takes a bit of reading to figure that out.
Here’s the real story:
Remember, there were two different tax credits: If you bought in 2008, you could deduct up to 10% of the purchase price (or $7500, whichever was less) as an interest-free loan. You had 15 years to pay it back.
But in 2009, the tax credit really was a tax credit — you could take it as a straight refund.
Ergo, the people who bought in 2008 will have to pay it back.
In other words, this isn’t news. It’s just a reminder that some people took advantage of the 2008
tax credit loan, while others were luckier — they bought in 2009 and got a true refund.
The headline could have been "Don’t forget: Some people only got a loan," but that’s not nearly as interesting.
The news, buried in the story, is that the IRS is having trouble separating who bought their homes when, and who moved out too soon. (If you sell within 36 months you have to return the refund.)
When the Treasury’s Inspector General for Tax Administration checked up on the IRS, it found that the tax guys had recorded the wrong purchase date for about 73,000 homes where the buyer claimed the credit — that’s about 4%.
So some people would have been told to pay when they really didn’t have to, while others may have gotten off without having to repay (if the IRS thought they bought in 2009 instead of 2008).
Sadly, though, it’s the original, incomplete/incorrect story that’s making the rounds.