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.

  • Jason Improta

    Well ain’t that great? That should stir things up a bit in a an otherwise boring real estate market!

  • Homes In Pasadena

    This will be very interesting to follow.

    Thank you for the article.

  • Montreux Golf and Country Club

    Yes, this will be interesting to follow! It’s amazing how many people indulge in fraud. Great point to double check your paperwork!

  • Francis Albertson

    Is their any business that will not require us to pay taxes?

    On every business the number one concern is taxes.

    – Francis Albertson

  • Cindy

    We got the letter today! We told the IRS we bought our home March 31st, 2008. Apparently this credit is for people after April 8, 2008. We recieved the credit not knowing it was for people AFTER that date. So I guess I’ll see how the government expects us to pay that back!!

  • Viviana

    We also got a letter 2days ago from IRS! We bought our home January 25, 2008 and received the credit not knowing we were doing any wrong (Thanks to the Tax Agency we went through):( I went to the IRS office today and was advised that we have to pay it back plus interest of 4% and penalty fees(which are unknown at this time) and they will add them from the time we got our credit which was April of 2009 to the present. Worst thing is that my husband is unemployed and they expect us to pay it all in full otherwise interest and penalty fees will keep accruing!!

  • Pingback: Irs Tax Credit « « Karen Speaks Karen Speaks

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