After renting an apartment for five years, Todd and Diane purchased a new home o
ID: 2348304 • Letter: A
Question
After renting an apartment for five years, Todd and Diane purchased a new home on July 1, 2008. On their 2008 joint tax return, they claimed a $4,500 (refundable) first time home buyer credit. Answer the following questions relating to the credit.A. Assuming they still live in the home, what amount of credit must Todd and Diane repay with their 2011 tax return?
Credit repaid $
B. Assuming they sell the home in August 2011 for a $32,250 gain, what amount of credit must they pay back with their 2011 tax return?
Credit repaid $
C. Assuming they sell the home in August 2011 for a $3,900 gain, what amount of credit must they pay back with their 2011 tax return?
Credit repaid $
Explanation / Answer
a.
Because they purchased the home and claimed the credit in 2008, they must pay back the credit in 15 equal installments beginning with 2010. With their 2011 tax return, Todd and Diane must repay $300 ($4,500/15).
b.
$4,200. Because Todd and Diane sold the home before repaying the entire credit, they must repay the balance of the unpaid credit with their 2011 tax return. Assuming they made the proper payment of $300 in 2010, they would then be required to pay the remaining $4,200 ($4,500 – $300) with their 2011 tax return.
c.
$4,150. This is the same answer as (b) except the payback is limited to the gain on the sale of the home.
a.
Because they purchased the home and claimed the credit in 2008, they must pay back the credit in 15 equal installments beginning with 2010. With their 2011 tax return, Todd and Diane must repay $300 ($4,500/15).
b.
$4,200. Because Todd and Diane sold the home before repaying the entire credit, they must repay the balance of the unpaid credit with their 2011 tax return. Assuming they made the proper payment of $300 in 2010, they would then be required to pay the remaining $4,200 ($4,500 – $300) with their 2011 tax return.
c.
$4,150. This is the same answer as (b) except the payback is limited to the gain on the sale of the home.