Chronicles of Tax Advisors
A young, single mother came to us for assistance with the first-time homebuyer’s credit. The credit was essentially a government loan in the form of a tax credit to encourage first-time homebuyers to buy a home. Originally, this credit was to be repaid to the government in annual installments over 15 years beginning in 2009. Subsequent law, however, revised the repayment agreement. Now, only taxpayers who bought their houses in 2008 and benefited from the credit have to repay it, whereas those who purchased their houses in 2009 and later do not.
The single mother received a credit against her 2008 tax return that had to be repaid to the Federal government over the next 15 years at $500 per year. Ironically, she closed on her home on 12/31/2008. Had she closed on January 1, 2009, she would have received the credit but would NOT have had to repay it. Is that terrible or what? To compound that unfortunate circumstance, she lost her home to foreclosure two years later.
Nevertheless, we found multiple ways to help this young Mother. First, there is an exception to repayment of the first time homebuyer’s credit of 2008. In the event you lose your home due to foreclosure, and if that foreclosure results in a loss greater than the unpaid balance of the credit, you do NOT have to repay its remaining balance, as long as the loss is reported properly to the IRS. In fact, very seldom will a foreclosure result in gain. In this young Mother’s case, she incurred a $20,000 loss; upon reporting this loss on form 5405, she will be forgiven the unpaid balance of the credit.
Secondly, we reduced her tax liability with the child care tax credit. The child care tax credit exists to help parents who work offset childcare expenses. In her case, she sent her two-year old son to a learning center and incurred substantial tuition and other care costs. She did not think she could use the tuition as an eligible expense toward the child care credit. We informed her that she could and calculated a substantial child care credit for her.
It ALMOST ALWAYS PAYS to seek out professional tax assistance. Let us help you!
Dave Motes, CPA
Authorized to practice before the Internal Revenue Service
A Certified Public Accountant (CPA) is a federally authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audit, collections, and appeals.