Who must complete Form 5405 Repayment of First-Time Homebuyer Credit?

This credit was a popular but temporary tax credit that helped people buy a home following the subprime mortgage crisis. Part of the Housing and Economic Recovery Act, the Housing Assistance Tax Act of 2008 provided first-time home purchasers with a refundable tax credit worth 10% of the purchase price of a principal residence up to a maximum credit of $7,500.

To claim this credit, buyers had to qualify based on income and complete the purchase agreement between April 9, 2008 and before May 1, 2010. The credit was only available for first-time buyers who purchased a home to serve as their principal residence; vacation homes or rental property did not qualify.

Home buyers who received the credit were expected to pay a surcharge on their annual income taxes each year for the next 15 years, eventually repaying the full amount of the credit. Thus, buyers who claimed the credit for homes purchased prior to December 31, 2008, the credit served as an interest-free loan. Repayment began with 2010 tax returns.

If you purchased your home in 2008 and received the first-time homebuyer credit, you must file Form 5405 with your 2020 tax return if either of the following statements is true:

    1. You disposed of it in 2020
    2. You ceased using it as your main home in 2020

The program will automatically create the form based on your entries (home disposed of).

If you bought your house in 2008 and received the maximum first-time homebuyer credit, you’re repaying $500 per year. Home buyers who received less than the full $7,500 credit repay 6.66% of the total credit amount each year.

If you filed jointly with your spouse when you received this credit, you and your spouse are individually responsible for repaying one half of the credit, even if you are no longer married. However, if ownership of the house is transferred to one spouse (or one ex-spouse) then the spouse or ex-spouse who currently owns the home is solely responsible for any repayment due on the credit.

If the repayment is being reported on a joint return, each spouse is responsible for one half of the credit received. Therefore, each spouse must report repayment for one half of the credit. 

The first-time homebuyer credit was later extended and expanded. Recipients of the later versions of the credit were usually not required to repay the credit though, as it in essence became a grant rather than an interest-free loan.


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