Please, help me relax!!

[curiosa]

In 2009 my husband and I received the first-home buyer credit (the all 8000) after buying our first home. At the time the plan was to stay for 3 and 1/2 years until the end of my second fellowship. Then we planned to convert the house in a rental, and keep it as investment. However, I was offered my dream job earlier than expected, and decided to forgo the second certification.

So we moved in October. Our home was quickly converted in a rental, and now we need to repay the 8000$. My understanding is that the bill comes due with the 2010 taxes. Without that, we overpaid taxes (probably 2-3000, I am not sure yet, because of the depreciation, and my new job taxes assume a much higher salary that what will result at the end combining the two segments).
Anyway, I am concern about the following: with the repayment of the 8000 credit, we will own taxes. Are we going the be fined? Is there a penalty?

I was not able to find that anywhere (but I am not a tax professional). I am planning to see a professional to do our taxes, but I may not have time before the year is over (new job!!) and it is to late to send more money to the feds!!

Thank you so much for your help

[TheOtherMe]

From irs.gov

Q. If I claim the first-time homebuyer credit for a purchase in 2009 or early 2010 and stop using the property as my principal residence before the 36 month period expires after I purchase, how is the credit repaid and how long would I have to repay it?

A. If, within 36 months of the date of purchase, the property is no longer used as your principal residence, you are required to repay the credit. Repayment of the full amount of the credit is due at the time the income tax return for the year the home ceased to be your principal residence is due. The full amount of the credit is reflected as additional tax on that year's tax return. Form 5405 and its instructions will be revised for tax year 2009 to include information about repayment of the credit.

Look at Form 5405 on the IRS website. Parts III and IV are applicable to the situation you describe.

[mwcpa]

curiosa...

if you stopped using the home as your principal residence in 2010 the repayment of the credit (and any other federal income tax for 2010) was due April 15, 2011. As it is now November 2011, you are very late.... if you meant that the home ceased to be your principal residence in 2011, then the repayment and any tax is due April 15, 2012.

If you expect to "owe" tax with the 2011 tax filings please review the form 2210 and its instructions to see how the "penalty" for failure to pay estimates is computed (for most people, if your withholding tax equals or exceeds your actual 2010 tax no penalty will apply, provide all tax that is owed is paid on or before April 15, 2012.)

[bring in the new year]

curiosa,

I assume you moved in October 2011 and you're talking about 2011 taxes, not 2010?

Any possibility of moving back before the 36 months is up?

If not, and if there's no problem with coming up with the extra taxes, than you can pay the difference with your fourth quarter estimates in January 2012.

But with all of the changes, it might be worth your while to go to a CPA who does taxes in Nov/Dec. They should be able to tell you exactly what to do and more importantly, set you up for a more peaceful 2012.

Good luck.

[curiosa]

Yes, I am sorry

I ment that we moved this october (2011), and the credit will be due with the 2011 taxes (which is in 2012?)

[curiosa]

We should not have any problem in paying the credit by April 2012. It was my misunderstanding that you need to pay all 2011 taxes by december 2011, or you will pay penalty.

Because of all changes, I am not sure of how much it will be due, that is why I wanted to wait for january 2012 when we can have our taxes done

[curiosa]

Also, I wanted to thank everybody for answering my (confusing) post.

I agree that it will be nice to find a CPA before the end of the year, however, with the new job and being a new city (and different state), it requires some asking around/looking.

My main concern was the need of starting to send extra taxes immediately (and I may still do it). But, if I understand correctly we can wait until the beginning of the year.

[TheOtherMe]

You might be subject to the Estimated Tax penalty. Take a look a Form 2210, as mentioned previously, and see if you think you will meet any of the exceptions. If not, it might be worth your while to make an ES payment by December 31.

[mwcpa]

since the extra "tax" was created in the 4qQ of 2011 (October is the 4th Q) any "required" payment will not be until January 15, 2012.

The "requirement" to make an estimated tax payment will be based on the following...

If your 2011 withholding tax payments equal or exceed the lesser of 90% of the actual tax for 2011 or 100/110% of your actual 2010 tax.

So, if your AGI was 50K in 2010 and your tax was 8,000 and you expect your 2011 tax to be the same except for the payback of the tax credit or 13,000, you are required to have paid 8,000 (in estimated or through withholding) in 2011 (last estimate is due Jan 15, 2012).

Based on your posts you may be "okay".... but as theo noted (and I noted previously) take a look at form 2210 and its instructions (look at the 2010 form for now).

[curiosa]

I am sending extra 1000$ every two week. So to the end of the year it will be 4000$. Plus I will end up paying about 5000$ of taxes, which I think that it is more than we will own (probably 1500$ more).

Thank you!! Hopefully, I will find a CPA before the end of the year!!

[mwcpa]

curiosa....
please note, you are NOT required to make the next installment for the 4th Q of 2011 until January 15, 2012.....
by making payments as you note you may "confuse" the IRS who may misapply the paymets.... are you using form 1040-ES to make these extra, and unnecessary at this time, payments?

[curiosa]

No, I changed my W4 form on line to pay an extra 1000$/paycheck. Isn't it all going to federal taxes?

I will change it back.......
I am sorry....I feel very stupid

[curiosa]

mwcpa, thank you for sending me that form. It does talk about the credit........without really explaining what to do, but at least it is there. I will look at it more carefully. Anyways, will be better to just save the 8000$ in a saving account and then send the form in at the end of the year?

I really need a CPA!! I will start looking this week end (during the day I am so very busy at work).
Obviously, you can tell that doing taxes is not my job......I am still so naive!!

Up to this point (only the last 5 years), I have been using turbo tax. But our situation was simple.

Thank you everybody, you guys are great!! it makes me feel better being able to talk about this (my husband hates everything financial)

[TheOtherMe]

If you are having the $ withheld from your pay check, that will not confuse the IRS. I have done that in years when I knew I was going to owe.

I've prepared tax returns when we did all the withholding for the client on the last pay check of the year--after they decided on their salary for the year.

Withholding from your salary is considered as paid in throughout the year.

[phil5185]

Anyways, will be better to just save the 8000$ in a saving account and then send the form in at the end of the year?

The general rule is that if you you owe less than $1000 in April there is no penalty. And the 'safe harbor' rule is that if you had more tax withheld during 2011 than your total bill for 2010, there is no penalty.
But if there is a penalty, don't be concerned. It is based on the portion that the IRS considers to be underwithheld and only for short part of the year. Ie, say you owe $8000. That is $7000 over the limit, and the IRS will calculate the duration that you were underwithheld - maybe $4000 for 3 months, $2000 for 6 months, $1000 for 9 months. And then apply their penalty rate, about 4%, to that - so maybe $100. The IRS calculates it for you and sends you a separate billing, if I remember, it comes in Sept or Oct. In any case, $100 is an inexpensive fee to pay for the use of $8000 for a year or two?

[curiosa]

Hi, Phil

I am still trying to figure this out (saving money for the payback). I found a CPA that I will like to check out before X-mas.

But I wanted you to know that your posts are part of the reason I am even renting out!!
I have a very stable job (because it requires some seriously difficult to obtain certifications) in science/health, no kids (and no kids planned), and I signed up for every insurance I could at work (and I am still considering more!!). I want to leverage that security to invest "Phil" style. I am still very early in the game !! Only one rental, and the IRA/401 etc.
But, thanks!! I am not holding you responsible......however, I think that you do change people lives on this board. You and others, of course. Especially for people like me, which come from an other country and never ever were exposed to anything financial.

[gavinsnana]

Have a glass of wine and relax! ;D

[mwcpa]

"I found a CPA that I will like to check out before X-mas"

That is the best thing you could do.... a qualified tax professional should be able to explain these issue better to you face to face.... it's hard in a forum like this....

now that you have taken the first step you can take the advise of gavin and have a glass of wine...

[curiosa]

Yes, I am spending some time this week end to put together documents and write down all the questions I have. It will be the first quiet time I had after the move. And I would like to meet for a "pre-taxes" session. How should I call it? I wanted to ask the CPA for this meeting, and how much he will charge for it. What will be the best way to describe it?

[curiosa]

And then, I will buy some wine.......however, I am from Italy, wine is just what you drink during a meal.....tequila, however....

[mwcpa]

You want to have them prepare a tax projection and offer some planning advise to help you minimize your tax obligations for 2011....

Depending where you live will determine the "cost".... big cities, like NYC or LA or Chicago will have a higher cost for assistance than in a more rural area or smaller city....