Half of All First Time Homebuyer Claimants Must Return Money

In order to stimulate the faltering real estate market caused by the mortgage meltdown, the U.S. Government created a number of tax incentives for first time homebuyers. Approximately 1.8 million Americans pursuing the American Dream of homeownership tapped into the program. At one point the program provided an $8,000 tax refund as part of a home buying incentive. The Inspector General for Tax Administration has recently reported that around 950,000 have to pay back the money.

950,000 Must Repay U.S. Government

Earlier this month the Inspector General for Tax Administration reported that nearly half of all the homebuyers who benefited from the $8,000 first time home buying credit from the United States Government need to repay the money. The repayment will be necessary as some benefactors of the money made erroneous claims for the funds caused by human error or made fraudulent claims. Confusion regarding home purchase dates is the biggest culprit.

As part of the American Recovery and Reinvestment Act of 2009, an $8,000 cash refund was offered to homebuyers who bought their homes from the program launch date until May 1, 2010. While millions of consumers legally qualified for the refund, recent information has indicated that the Internal Revenue Service (IRS) had incorrectly recorded the home purchase dates of more than 4 percent of the 1.8 million program participants.

History of First Time Homebuyer Credit

As a direct result of the real estate bust and boon cycles that started to spread across the nation in 2007, one of the first acts of President Barack Obama's administration was to generate activity in the country's weakened real estate sector fueled by subprime loans and foreclosures. At the time, the move helped keep the mortgage industry alive.

The Housing and Economic Recovery Act of 2008 offered first time homebuyers a tax credit of up to $7,500. This first version of the homebuyer credit program required a home to be bought starting in 2008 and expiring on Nov. 6, 2009. The initial rebate program was actually an interest free installment loan that needed to be "repaid in 15 equal, annual installments beginning with the 2010 income tax year" (IRS.gov).

After the initial offering, the American Recovery and Reinvestment Act of 2009 modified the program. The potential refund amount was raised to $8,000 and no repayment of the money was due unless the home was no longer the owner’s primary residence within three-years of the purchase transaction. This program applied to homes bought in 2009 until the program initially expired at the end of May 2010. The claim needed to appear on taxpayer documents on either a purchaser's 2008 tax return (due April 15, 2009), or a 2009 tax return (due April 15, 2010.)

The confusion surrounding the two programs was caused by misreporting of purchase dates. In response the IRS is going to review their files and distinguish 2008 homebuyers from their 2009 counterparts. Once the consumers have been properly categorized, a repayment plan will be established.

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