IRS Form 5405: Repaying the First-Time Homebuyer Credit

The First-Time Homebuyer Credit (FTHBC) was a tax benefit for homes purchased between 2008 and 2010. IRS Form 5405 is the document used to report the repayment of this credit. For homes bought in 2008, the credit was an interest-free loan requiring repayment over 15 years. Since the repayment requirement for 2009 and 2010 purchases has expired, this form is now filed almost exclusively by those with a 2008 home purchase when events accelerate the standard repayment schedule.

Determining Your Repayment Obligation

For a home purchased in 2008, you received a credit of up to $7,500, structured as a loan to be repaid in 15 annual installments of $500, beginning with the 2010 tax year. If you sell the home or it stops being your main residence before the 15 years are over, the entire remaining balance of the credit becomes due in that year.

Certain circumstances can relieve you of the repayment obligation.

• If the homeowner dies, the remaining balance is forgiven.
• Transferring the home to a spouse or ex-spouse in a divorce settlement shifts the repayment responsibility to them.
• For involuntary conversions, like destruction of the property, repayment may be waived if there is no gain. If there is a gain, repayment is limited to the lesser of the gain or the remaining credit balance.
• Members of the uniformed services, foreign service, or intelligence community may be exempt if they sell the home due to qualified official extended duty.

Information Required to Complete Form 5405

To complete Form 5405, you will need the exact date you originally purchased the home and the total FTHBC amount you received. You must also have the date the property was sold or ceased to be your main home. If the home was sold, you need the selling price and your adjusted basis to calculate any gain or loss.

The form is divided into three parts. Part I reports information about the disposition or change in use of your home. Part II is where you calculate the accelerated repayment amount. Part III is a worksheet to figure your gain or loss on the sale. The amount you must repay is limited to the amount of gain on the sale, meaning your repayment will be the lower of your remaining credit balance or your gain.

Filing Form 5405 with Your Tax Return

Once you have calculated the repayment amount on Form 5405, you must report this figure on your annual income tax return. The total repayment obligation is carried from Form 5405 to Schedule 2, “Additional Taxes,” which is filed with your Form 1040. This amount increases your total tax liability for the year, which could reduce your expected refund or result in a balance due.

The method for submitting Form 5405 depends on how you file your taxes. If you are filing a paper return, you must physically attach the completed Form 5405 to your Form 1040. For those who use tax preparation software to e-file, the program will handle the submission process. The software will use your answers to automatically fill out Form 5405 and transmit it electronically to the IRS with your tax return.