A. In general, for most people, the first-time homebuyer credit is not available for a home purchased in 2011. However, certain members of the uniformed services and Foreign Service and certain employers of the intelligence community can claim the credit for home purchased in 2011, if they are first-time homebuyers or long-time residents of the same main home.
If you qualify for the credit, you must attach the following documentation regarding your main home (as applicable). If you do not attach the documentation, the credit may not be allowed.
Attach a copy of your settlement statement showing all parties’ names and signatures, the property address, the contract sales price and the date of purchase. In most cases, your settlement statement is your properly executed Form HUD-1, Settlement Statement. In locations where the signatures of the buyer and seller are not required, the IRS encourages the buyer to sign the settlement statement before attaching it to the tax return — even if the settlement statement does not include a signature line.
If you are unable to obtain a settlement statement because you purchased a mobile home, attach a copy of your executed retail sales contract showing all parties’ names and signatures, the property address and the date of the purchase.
Q. I heard the laws changed and now this credit does not have to be repaid.
A. The law changed for home purchases in 2009, 2010 and 2011, which does not have a 15-year repayment requirement. The law did not change the 15-year credit repayment requirement for home purchases in 2008.
Q. Do I have to file Form 5405 if I am making an installment payment for a home purchased in 2008?
A. No. If you are making an installment payment for a home purchased in 2008, you do not need to file Form 5405 again.
Q. When must I pay back the credit for the home I purchased in 2009?
A. Generally, there is no requirement to pay back the credit for a principal residence purchased in 2009, 2010 or early 2011. The obligation to repay the credit arises only if the home ceases to be your principal residence within 36 months from the date of purchase. The full amount of the credit received becomes due on the return for the year the home ceased to be your principal residence.
Q. I received the credit and sold my home. How do I repay the credit?
A. If your home was purchased in 2008, all remaining annual installments become due on the return for the year of sale. The repayment is limited to the amount of gain on the sale, if the home is sold to an unrelated taxpayer. If there is no gain or if there is a loss on the sale, the remaining annual installments may be reduced or even eliminated. If the home is sold to a related person, the total amount of the credit must be repaid. Taxpayers may want to consult a tax professional to determine the tax consequences of a sale.
If your home was purchased in 2009 or later, and your home stops being your main home within 36 months from your date of purchase, you may need to repay all or part of the credit. The repayment of your credit is an increase to tax on your tax return for the year the home stops being your main home.
Q. When does my home stop being my main home?
A. Here are examples of when your home stops being your main home:
- You sell the home.
- You transfer the home to a spouse or former spouse in a divorce settlement.
- You convert the entire home to a rental or business property.
- You convert the home to a vacation or second home.
- You no longer live in the home for the greater number of nights in a year.
- Your home is destroyed or condemned.
- You lose your home in foreclosure.
- You die.
Q. When do I repay the full credit?
A. Here are the conditions when you must repay the full amount of the credit:
- You sold your main home to a related person or entity.
- Your home is destroyed, condemned or disposed of under threat of condemnation and you do not purchase or rebuild a replacement home within two years.
- You converted the entire home to a rental or business property.
- You converted the home to a vacation or second home.
- You no longer live in the home for the greater number of nights in a year.
Q. When do I repay all or a part of the credit?
A. Here are the conditions under which you repay all or a part of the credit:
- You sold your main home to a non-related person or entity. You repay the remaining amount of the credit limited to the amount of your gain. Note: when calculating gain or loss on your main home, you reduce your basis by the amount of the credit you received that you have not previously repaid. See Publication 551, Basis of Assets, for more information.
- You lost your home in a foreclosure. You must repay the credit only up to the amount of gain.
- For example, you purchased a principal residence for $95,000 on April 30, 2010, and took the $8,000 credit. You sell your principal residence to an unrelated person for $90,000 on Feb. 14, 2012. To determine if you must repay any amount of credit, you must adjust the basis of the property by $8,000, which is the amount of the credit you received. The revised basis is $87,000 ($95,000 minus $8,000). The gain on the sale is $3,000, which is the amount of credit that you must repay with the tax return for the year of the sale of the principal residence.
Q. How do I calculate my gain or loss if my property was condemned or disposed under threat of condemnation?
A. We have some examples for you to use.
For homes purchased in 2008: You purchased a principle residence for $95,000 on April 30, 2008, and took the $7,500 credit. The residence was damaged by fire in July 2015 to the point that the residence is uninhabitable. You intended to repair the property; however, you determined in October 2015 that the property could not be repaired. The property was condemned and you were required to seek a replacement residence. You began repaying the credit on your 2010 tax return and continued to pay the annual $500 repayment each year. In April 2017, you purchased a replacement residence. You must continue to repay the $500 per year.
For homes purchased in 2009 or later: You purchased a principal residence for $95,000 on April 30, 2010, and took the $8,000 credit. The residence was damaged by fire in July 2011 to the point that the residence is uninhabitable. You intended to repair the property; however, you determined in October 2011 that the property could not be repaired. It was condemned and you were required to seek a replacement residence. In April 2012, you purchased the replacement residence. You are not required to repay the credit unless you dispose of the replacement residence during the remainder of the 36-month period, until April 29, 2013.
Q. How much is the repayment amount?
A. The total repayment amount is equal to the full amount of the credit received.
Q. Can I repay more than the minimum amount?
A. You must repay at least 1/15 of the credit with every tax return during the repayment period until the year the credit is paid in full. You can choose to repay more than the minimum amount with any tax return. Your final payment may be less than the required minimum amount.
Q. Are there exceptions to the repayment rule?
A. Yes, the most common exception is when the home ceases to be your main home. (Death, the sale or transfer of a home and divorce also can affect someone’s remaining annual installments.)
If your ownership status changes, you must file a Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, with your tax return for the year in which the change occurred. You report your change in ownership status by checking the appropriate box in Part III (Disposition or Change in Use of Main Home for Which the Credit Was Claimed) of the form.
All remaining annual installments become due on the return for the year when the change happens.
Q. What if my spouse dies? Do I have to repay the entire amount of the credit?
A. You are required to pay only half of the remaining credit balance; a deceased spouse’s half is no longer owed. For example, taxpayers who received a $7,500 first-time homebuyer credit on their joint income tax return will have to repay the credit with $500 in additional taxes over 15 years. If a spouse dies, the repayment amount lowers to $250 for the remaining spouse.
Q. Can I find my first-time homebuyer credit account information online?
A. Yes. You can access your account information by visiting our website at www.irs.gov. Look for the First Time Homebuyer Credit Account Look-up under the “Tools” heading on the home page. The application will require that you enter your Social Security number, birth date and complete address. It will display the last 4 digits of your Social Security number, the original amount of the credit, the annual repayment amount, the total amount paid and the total remaining balance. The application allows you to print the account information for your personal records or to share your account information with your tax preparer.
Q. Can I file and make first-time homebuyer tax credit payments electronically?
Q. Where can I find more information on the First-Time Homebuyer Credit?
A. Use the IRS’ First Time Homebuyer Credit Account Look-up to get account information such as the total amount of your credit or your repayment amount.
You can get additional information about how to repay the credit on the First-Time Homebuyer Credit page.
You can also learn more by reading Publication 523, Selling Your Home, and Publication 544, Sales and Other Disposition of Assets.
Amy Vulpis is a full-time real estate professional with Balistreri Realty International, Inc. in Fort Lauderdale, FL who specializes in luxury waterfront property. She is dedicated to providing her clients with superior customer service. For any questions regarding buying, selling or leasing or more information on the South Florida Real Estate market contact Amy Vulpis, Realtor @ 954.591.4280 or visit www.amyvulpis.com.
This article is for information purposes only. It is not intended to solicit or give tax advice. For further information regarding the first-time homebuyer credit, please contact your tax advisor or attorney. Article Courtesy of IRS.gov