[MR77]

I need some insight. I've actually emailed the IRS, but am so worked up I wanted to throw this out to the forum to see if there is anyone else on this board in my situation.

Back in 2008 I purchased a wonderful 3 bedroom townhouse in the southwest part of the valley. At that time, I decided to take advantage of the 2008 First Time Home Buyers Tax Credit. I knew full well that it was not a credit, but an interest free loan for $7500.00 that was to be paid back over 15 years. The home was in foreclosure and I took the money and put in new floors, hardware, etc... really made the place comfortable and nice. I loved that townhouse.

At the beginning of 2010 my employer transferred me the NYC area where I now rent. I could not sell the property in Las Vegas becuase the value dropped so drastically, it was to the point where I could not take a loss that great. I simply did not have the money to bring to the table. We are talking about a matter of 30-50K. Could be worse, right? Had I stayed in Vegas there was a real possibility I would have been laid off. So off I went. I hired a management company and they found me a renter; but since rents had dropped, she was not even covering the mortgage payment. I typically spend 300-400 per month out of pocket, depending on the operating expenses, to carry the property and keep the mortgage paid and the home out of foreclosure.

In light of this, I received a letter from the IRS telling me that if I had turned the property into a rental the $7500 is due back immediately. When I went to file my taxes this year indeed this all came to light and once I file, they expect the check. I decided not to file just yet and am seeking some guidance from the IRS. I have not yet met with a tax professional, but I anticipate they will not have good news. This seems to be a black and white issue with the IRS and from what I can gather through my research on-line is that it does not matter... your motives for having a rental, a hardship, or the fact that the rental sucks you dry each month is of no concern.

What drives me nuts is that if I could have easy just done a short sale or perhaps I could have walked away from the property and that tax credit/loan would be forgiven. Yes, you pay taxes on the amount forgiven, but jeeze! It's like being rewarded for bad behavoir, no? Here I am, trying to do the right thing, and I get the stick.

I do have faith that the market will eventually turn around and I will have equity in the home. I have a renter who resigned for another year and actually willing to accept a $50/mo rent increase. But for right now, I just feel it is a shame to get hit with this tax bill. So much for doing the right thing...

Anyway, thanks for reading my rant. If anyone on this board has some insight or opinions please reach out. I am sure there are others here in my shoes.

PS... I was back in Las Vegas last week for buisness. 60's and sunny. Sure was a nice break from the ice in the northeast!

[jhiker1o]

Condition on the 7,500 interest free loan was that you are a 1st time homebuyer and the house will be your residence. There is a minimum time that you must reside in the property and you cannot foreclose or do a short sale on it. As soon as they found out you were renting it, all bets are off.

Same thing with the 8,000 credit. First time homebuyer receiving the credit must stay in the property for at least 3 years and cannot go on foreclosure/short sale.

[JohnG72]

Originally Posted by MR77

I do have faith that the market will eventually turn around and I will have equity in the home.

Unless you consider 10+ years to be ok, your faith is horribly misguided.

[airics]

Maybe u can make an arrangement with the IRS. However rents did not go down alot from 2008 to 2010. Get a new property mgmt company

[hockeygirl4]

I received a letter reminding me of these stipulations back in August. I bought a townhome in Nov. 2009. My boyfriend, just found out his company is going out of business and may be moving to San Antonio and wanted me to go with him, but unfortunately, i have to be the primary resident in the townhome for another 2 years. Same situation. Sorry, but it does S*&%

[HonestOne1]

Originally Posted by MR77

I do have faith that the market will eventually turn around and I will have equity in the home.

....and that would be the same faith that led you to believe 2008 was a good time to buy?

We are a longgggg ways from bottom. Nevada is a deficiency judgement state. And the IRS doesn't mess around.

Might want to throw some clothes in the car trunk and trek on back to your responsibilities in Vegas.

[thlf]

I'm not sure I get it. You got a gift from the gov't with stipulations. You brake the stipulations and now you don't want to abide. Come on people.

[Croce]

Originally Posted by thlf

I'm not sure I get it. You got a gift from the gov't with stipulations. You brake the stipulations and now you don't want to abide. Come on people.

It's the way of the world for most people. If they sign a pledge to repay a mortgage and the house goes underwater (negative equity) a lot will walk away. There is no remorse - it's just a business decision and it's not their fault. Obviously it must be the fault if the greedy bankers. Pretty much not a lot of personal responsibility exists today as it's always someone else's fault.

[AnnieA]

I agree with a lot of what people are saying but who would have thought we would be where we are right now with the economy. Unless you own your own business and/or know for sure you will be in the same area for the right amount of time, I wouldn't take the credit, actually, I wouldn't own.

[olecapt]

A couple of things. Reading the IRS web site it appears that the 2008 deal requires immediate repayment if you rent the house. It would however require repayment if you sold the house only if you made a net gain. So a short sale would result in no liability.

You however appear to have taken on the liability to pay off the loan when you rented it and I doubt there is any way to recover. Virtue is its own reward I guess. You might ask a knowledgable accountant with an extensive tax practice if there is a way to invert the situation. I don't think so.

I believe the payoff of the loan is done by adding it to your tax bill. Note that it is reasonably easy to negotiate a payment schedule with the IRS. Just do the return and then go talk to the IRS or hire one of the outfits that do it and negotiate a payoff over a couple of years.