Home ownership has distinct advantages over renting a home or apartment: long-term residence in your community, no sudden rent increases, and the long-term investment of home ownership. You also have the opportunity to claim tax credits to help offset the costs of owning a home, including the Homeowner Tax Credit.
Chances are you may qualify for this tax credit if you’ve already purchased a home. In theory, this credit was designed to help you pay off your home earlier, and you can claim up to $8,000.00. As with any credit, the IRS has established a set of guidelines with respect to this credit. Here is a brief look at how this credit may work to your advantage, and what to watch for when claiming the Homebuyer Tax Credit.
Know Your Limits
Unfortunately, the tax credit doesn’t have an unlimited amount: the maximum you can claim is $8000.00. Unlike standard tax credits you get each year, this credit was designed for the sole purpose of helping you to pay off your home faster.
At the same time, however, you will need to pay back any credits you’ve accrued over the years if you decide to sell your home.
Exceptions To The Rule
As with any IRS provision, there are exceptions to the rule:
- If your home was transferred to your spouse as part of divorce proceedings. The repayment will then be transferred to your spouse; you’ll no longer be responsible for repaying the credit.
- Natural disaster: if your home was destroyed in a natural disaster or other event, you won’t need to pay back the tax credit all at once. You’ll still need to pay it back at some point, but in this case there will be a grace period, especially if you buy a new home within two years of the event.
Like all other tax credits, there are ins and outs the IRS has devised. You’ll need to repay any accrued Homebuyer Tax Credits in either a lump sum or in installments, but at the same time, there are exceptions to the repayment rules.
By understanding the limits and exceptions, you’ll be a better informed homeowner when it comes to all aspects of home ownership, including applicable tax credits.