First-Time Homebuyer Credit Q&As
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The First-Time Homebuyer Credits in 2008, 2009, and 2010 made it possible for many people to buy a starter home. In certain instances, long-term homeowners were also able to claim this credit.
Some taxpayers may need to pay back all or a portion of this credit to the IRS. The amount you must pay back, if any, depends on when you took the credit, how long you lived in the home, and other factors.
What's the difference between the credit in 2008, and the credit in 2009 and 2010?
The two credits worked differently from the start. The 2008 credit was really an interest-free loan. With this credit, you have to repay the money over a period of 15 years, beginning with your 2010 return. The minimum repayment amount each year is 1/15 of the credit you initially claimed.
The credit for 2009 and 2010 was not intended to be repaid. If you claimed a First-Time Homebuyer Credit in these years and that house remains your main home for 36 months, you do not have to repay the credit.
With either credit, however, you may have to repay the credit or any remaining balance on the credit if you stop living in the home before a certain time period ends, unless you meet a repayment exception.
What happens if I sell my home that I purchased in 2008?
If you took the First-Time Homebuyer Credit for 2008, but you stop using your home as a main home before you pay back the entire credit, you generally must repay the rest of the credit as an additional tax, unless you meet an exception.
What happens if I sell my home that I purchase in 2009 or 2010?
If you claimed a First-Time Homebuyer Credit for 2009 or 2010, and you use the home as your main home for 36 months following the purchase, you do not have to repay the credit.
If you stop living in the home before the end of 36 months, you may have to repay the full amount of the credit, unless you meet an exception.
What are the exceptions to having to repay the credit if I don't live in the home for the required time?
You may not have to pay back the credit you took in 2008, 2009, or 2010, if one or more of these conditions apply:
- You (or your spouse) were a member of the uniformed services or Foreign Service or an employee of the intelligence community, and you sell the home or move because of government orders for qualified official extended duty service.
- You sell the home or give it up in foreclosure, and you have no gain on the sale. The sale must be to an unrelated person.
- You transfer the home to a spouse or an ex-spouse as part of a divorce settlement. Your ex-spouse must take responsibility for any repayment.
- If your home is destroyed, condemned, or sold under threat of condemnation, and you have a gain in the transaction, you have two years to replace the property or make full repayment of the credit. For a home you purchased in 2008, you must continue to make installment repayments during that two-year period.
- If the home is destroyed, condemned, or sold under threat of condemnation and you do not have a gain on the transaction, you do not have to pay back the credit. The sale must be to an unrelated person.
- If a taxpayer dies, the credit does not have to be repaid.
What if I sold the house at a gain, but the gain is less than my credit repayment?
Your credit repayment is generally limited to your gain on the property, as long as you sell the property to an unrelated person.
When you calculate the gain on the property, you must adjust the basis of the property for the credit that you took and have not yet repaid. Your basis is generally the amount you paid for the house, plus improvements.
You reduce your basis by the amount of the credit before you calculate your gain. For example, assume the credit you claimed was $8,000 and the basis in the home was $178,000. For purposes of calculating the gain for credit repayment, your basis in the home is $170,000 ($178,000 - 8,000).
What if I bought the house with my spouse, but we don't file a joint return?
If you filed a joint return for the year you claimed the First-Time Homebuyer Credit, you are responsible for 50% of the repayment. If you filed as Married Filing Separately when you initially claimed the credit, you are responsible for the portion of the credit you claimed.
Where is this credit repayment reported on my tax return?
TaxAct reports these exceptions, and generally any needed repayment, on Form 5405, Repayment of the First-Time Homebuyer Credit.
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