First Time Home Buyer Credit Repayment

The FTHBC was a credit available for the purchase of homes after April 8, 2008, and before May 1, 2010. For the buyer to receive the credit, the purchased home had to meet certain criteria.

• For homes purchased between 4/8/2008 and 12/31/2008, the credit was up to 10% of the cost of the home with a maximum credit of $7,500.
• This credit was a 15 year, interest-free loan which required a minimum repayment of 1/15^th of the credit amount each year, beginning in Tax Year 2010.
  • For example: If you bought a home in 2008 and claimed the maximum credit of $7,500, the repayment amount would be $500 per year for 15 years, beginning with tax year 2010.
• 2009 and 2010 had several different version of the credit. They reached up to $8,000 and did not require repayment, provided that the home remained the main home of the buyer for three years after the purchase.

Reporting the Repayment

Interview Mode

1. Answer Yes to “Did the Taxpayer/Spouse claim the First Time Home Buyer credit for a home purchased in 2008?”
2. Answer subsequent questions
3. Enter the situation that applies to the current year:
   1. Make next payment or dispose of home etc.
4. Continue entering the applicable information.
    When making the next scheduled payment, Profiler will automatically calculate 10% of the credit originally received as the repayment amount. Only enter an amount in the question Enter any ADDITIONAL payment to be included with this required installment payment if the client wishes to add an additional amount to their minimum payment.
   • For Example: The required repayment is $500, but the client wants to pay an additional $200 this year. Enter $200 in the Enter any additional payments question and $700, the $500 minimum plus the additional $200, will be repaid.
5. The repayment will be reported on Form 1040, page2, in the Additional Taxes section.

Forms Mode

1. Either select ADD Form, and choose Form 5405, or access Form 5405 from 1040, page 2 in the Additional Taxes section.
2. Click the drill down arrow.
3. Complete Part I and Part II of Form 5405 for Repayment.
4. Complete Part I and III of Form 5405 for Disposition of Property.

Disposing of the Home

If the client stops using the home as their main home:

• Generally, they must repay the entire remaining amount of the credit within the year that the home is no longer their main home.
• The IRS matches information from a variety of sources when their home is sold, destroyed, foreclosed on, or is no longer their main home.
  • The IRS sends a CP03C Notice, Important information regarding your First-Time Homebuyer Credit, when it has information that your home is no longer your main home and you did not report the sale or other disposition on your federal tax return. This notice reminds you to report the sale or other disposition of your home on Form 5405.
• If the home is converted to a rental property, it is no longer considered your main home. Generally the remaining balance of the credit will need to be repaid in the year that the property is converted.
• If the home is sold, first report the sale of the home in ProFiler. Then, report the repayment of the credit.

Special Considerations

• If the home is sold for less than the outstanding balance of the credit, the repayment is capped at the gain on the sale of the home and the balance of the credit is forgiven.
• If the home is foreclosed on, the repayment is limited to the amount of realized gain. The taxpayer must repay the credit with the tax return for the tax year in which the lender or third-party purchaser obtains the title to the taxpayer’s home.
• The taxpayer has a disposition when their home is destroyed or condemned and they receive other property or money in payment, such as insurance or a condemnation award. This is treated as a sale. Refer to IRS Publication 523 for more information.

Death of Taxpayer

For Example: Taxpayer A and B are married. They bought a home together in 2008 and claimed the credit on a joint return. They received the $7,500 credit and repaid $500 each year. Taxpayer A dies prior to full repayment.

In this situation, Taxpayer A’s half of the remaining credit is forgiven, but Taxpayer B is responsible for only their half of the remaining credit. Taxpayer B is required to repay only $250 a year, beginning with the year the spouse passed away.

Divorce of Taxpayers

For Example: During their marriage, Taxpayer A and B purchased a home together and claimed the credit. Later, they divorced and Taxpayer A transferred the home to Taxpayer B under the divorce decree. Taxpayer A did not keep any interest in the home.

In this situation, Taxpayer A is no longer required to repay any remaining amount of the credit. Taxpayer B is responsible to repay the entire remaining amount of the credit in equal annual installments.