The first-time homebuyer credit provided taxpayers an incentive to purchase a home from 2008 through September 30, 2010. The refundable credit functioned as a loan, and repayment of the credit generally began with the 2010 tax return by adding a minimum of $250 (or $500 for MFJ filers) to the additional taxes due in the return. In the year the home is sold or converted entirely to rental or business use, the remainder of the unpaid credit balance is due.
Form 5405 needs to be completed in the year the home is disposed of or ceases to be the main home. In the case of a sale, including through foreclosure, this is the year in which the purchaser obtains the title to the home.
Note the following caveats:
- If desired, the taxpayer can pay more than the minimum annual repayment.
- When the credit was given to joint return filers in 2008, each spouse was treated as having been allowed half of the credit for the purpose of repaying the credit. Thus when repaying the credit on a joint return, each spouse pays a portion of the repayment amount however calculated.
- If the home's ownership is transferred to the other spouse (or ex-spouse in a divorce settlement), that spouse assumes responsibility for the annual credit repayment.
- If the homeowner dies and there is no surviving spouse, the remaining balance doesn't need to be repaid.
- If the home is destroyed or disposed of through condemnation or the threat of condemnation to an unrelated party, the remaining balance doesn't need to be repaid if there is no gain on the disposition. If there is a gain on the disposition, the amount to be repaid is the lesser of the gain or the remaining unpaid credit balance. The annual credit repayment will continue, and if the taxpayer hasn't purchased a new home within two years the entire remaining credit balance must be repaid.
- A taxpayer who is a member of the uniformed services, the foreign service, or an employee in the intelligence community doesn't have to repay the credit if they dispose of the home due to being on "qualified official extended duty" (see the instructions for the details).
To either enter the annual repayment of the first-time homebuyer credit or complete the form due to a change in ownership or use, from the Main Menu of the tax return (Form 1040) select:
- Other Taxes
- Repayment of First-Time Homebuyer Credit
- 2008 First-Time Homebuyer Credit Repayment - For MFJ filers, if the taxpayer and spouse are living at the end of the tax year, enter $250 for each; if the spouse died, enter $250 for the taxpayer only. For all other filing types, enter $500.
Note: If Form 5405 needs to be completed due to disposition or a change in use, we recommend confirming with the IRS the remaining unpaid credit. Click here to look up the remaining credit.
To complete Form 5405 due to the disposition of the home or due to it no longer being the main home, from the Main Menu of the tax return (Form 1040), select:
- Other Taxes
- First-Time Homebuyer Credit Repayment
- Complete Form 5405 - Complete Part I, then Part III, then Part II
- Part I - Disposition or Change of Main Home - Indicate the date, the reason for the disposition, and indicate if the taxpayer is on qualified official extended duty.
- Part II - Repayment of Credit
- Credit Claimed on Form 5405 in a prior year - Enter the amount of the original refundable credit the taxpayer claimed on their tax return in 2008-2010 (generally $7500 or $8000).
- Amount Repaid in 2010-20xx for 2008 Home Purchase - Enter the total repayments made since 2010.
- Gain on the Disposition of Your Main Home - This is a shortcut to Part III. Complete this section to determine the amount of the remaining credit to be repaid.
- Repayment Amount - The minimum or total repayment amount will be calculated, and depending on the circumstances, including the reason for the disposition, whether or not there was a gain or loss on the sale, whether or not the sale was to a related person, whether or not the home was converted entirely to business or rental use, whether the taxpayer is deceased or on qualified official extended duty, the repayment amount can be anywhere from zero to the remaining amount of unpaid credit. If it's more than zero but less than the remaining unpaid credit, it can be increased to the remaining amount if desired.
- Part III - Home Gain or Loss Worksheet - Complete this section to determine the amount of the remaining credit to be repaid. (The information requested is similar to what would be entered in Worksheet 2 in Publication 523, Selling Your Home.)
- Selling Price of Home - If the home was sold, enter the home's sales price; or if the home was destroyed, enter the total received in insurance; or if the home was condemned, enter the gross condemnation award.
- Selling Expenses - If the home was sold, enter expenses such as commissions, advertising, legal fees, and seller-paid loan charges. If the home was condemned, enter any expenses incurred in getting the condemnation award. See IRS Publication 523 for more info on what kinds of expenses can be included.
- Adjusted Basis of Home Sold - If in doubt about the adjusted basis of the home, complete lines 4 through 6 of Worksheet 2 in IRS Publication 523, Selling Your Home, here.
- Form 5405 Credit Claimed minus 2010-2020 Repayment - Enter the remaining unpaid credit balance.
Note: This is a guide on entering First Time Homebuyer Credit into the TaxSlayer Pro program. This is not intended as tax advice.