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Variations of the homebuyer tax credit have generated more than $19 billion in tax breaks for over 2.6 million first-time homebuyers since the programs began in July 2008. However, due to a combination of recording errors on the IRS’s behalf and home buyers attempting to circumvent the system, it looks like nearly half of the people that received money from the credit may have to return it.

That’s right. According to The Tampa Tribune, an audit from the U.S. Treasury Inspector General for Tax Administration found about 950,000 of the 1.8 million homebuyers who claimed the credit on their 2009 tax returns wrongly received payment.

How could this have happened? Well, as stated above, this tax credit conundrum was caused by faults by both the homebuyer and government. Homebuyer mistakes can be rooted to legitimate confusion regarding the two versions of the tax credit. Those who bought their home in 2008 are eligible for a no-interest loan of $7,500 which must be paid back over a 15-year period beginning with their 2010 income tax return. The requirement to pay back the loan was then eliminated for homes bought in 2009 and the credit was raised to $8,000.

However, some taxpayers are not so innocent.  According to The Philadelphia Inquirer, an IRS audit found $10.1 million in credits were claimed by 1,326 taxpayers that were deceased. About half of those claims were blocked.

As for the IRS recording mistakes, The Chicago Daily Herald reports that the IRS uncovered over 73,000 individuals who had already received the credit and had an incorrect purchase date recorded. Nearly 60,000 of those were incorrectly recorded by the IRS as having been purchased in 2008 when they were actually purchased in 2009. In addition, more than 9,000 credit recipients who purchased their homes in 2008 were recorded as having been purchased in 2009. Other claims were recorded with no date at all.

While the IRS is doing its due diligence to trace mistakes, this is a good time for anyone who made a home purchase in 2008 to double- and triple-check paperwork to verify eligibility and that the correct credit was applied for. Also, make sure to have a copies of your HUD settlement, tax return and mortgage interest statements on hand in case your eligibility is questioned.

About the Author

Lauren Riefflin manages news around Zillow Mobile communications and works closely with Zillow's real estate economists in preparing Zillow's real estate market reports. She also focuses on celebrity real estate news as both a Zillow Blog author and manager of celebrity content relationships.

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