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.
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.
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.
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.
You may not have to pay back the credit you took in 2008, 2009, or 2010, if one or more of these conditions apply:
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).
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.
TaxAct reports these exceptions, and generally any needed repayment, on Form 5405, Repayment of the First-Time Homebuyer Credit.