Credit or Debit?

The Home Buyer Tax Credit from recent years seemed to be a reasonable effort to jump-start the dramatic decline in home sales.  The tax credits attracted buyers who were eager to take advantage of the free money, and rightfully so.  However, several years have now passed since the last tax credit, and the fallout from the conditions are starting to be felt.  A recent buyer contacted me to sell their home which was purchased with the tax credit in place.  After talking with them, they realized that they had not lived in the home long enough to be exempt from paying the credit back.  Unfortunately, they did not have the cash to pay back the credit, and even if their home sold at market value, there would not be enough equity in the home to cover the monies owed to the federal government to repay the credit.  Plus, they needed the equity (cash proceeds from the sale) to make the purchase on their next home, which was a smaller and less expensive home than they were selling.  Although all of the conditions of the tax credit were explained at the time of purchase, the euphoria of buying their home caused them to forget the occupancy requirement because they thought it would be their “forever” home.