General Instructions

Future Developments

For the latest information about developments related to Form 5405 and its instructions, such as legislation enacted after they were published, go to www.irs.gov/form5405.

Reminder

Homes purchased after 2008.   If you purchased your home after 2008, and you owned it and used it as your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit or file Form 5405.

Purpose of Form

Use Form 5405 to do the following:

  • Notify the IRS that the home for which you claimed the credit was disposed of or ceased to be your main home in 2014. Complete Part I and, if applicable, Parts II and III.

  • Figure the amount of the credit you must repay with your 2014 tax return. Complete Part II and, if applicable, Part III.

Who Must File

You must file Form 5405 if you meet either of the following conditions.

  • You disposed of your home or you ceased using the home as your main home in 2014. (Note. This condition does not apply if you purchased the home after 2008 and you owned and used it as your main home for at least 36 months beginning on the purchase date.)

  • You are repaying the credit because you purchased your home after 2008, the home was destroyed or you sold it through condemnation or under threat of condemnation in 2012, and you did not purchase a new home within 2 years of the event.

In all other cases, you are not required to file Form 5405. Instead, enter the repayment on Form 1040, line 60b, or Form 1040NR, line 59b, whichever applies. For example, you are not required to file Form 5405 if you are making an installment payment of the credit you claimed for a home you purchased in 2008 and you owned it and used it as your main home during all of 2014.

Repaying the Credit (for Purchases After 2008)

If you purchased the home after 2008, and you owned it and used it as your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit or file Form 5405.

For 2008 purchases, see Part II. Repayment of the Credit, later.

You generally must repay the credit if, after the year for which you claimed the credit, you dispose of the home or it ceases to be your main home during the 36-month period beginning on the purchase date. This includes situations where you sell the home (including through foreclosure), you convert the entire home to business or rental use, the home is destroyed or condemned, or you dispose of the home under threat of condemnation.

When you convert your entire home to business or rental use, you no longer use any part of it as your main home. The home is used for business if you use it for an activity that you carry on to make a profit. The facts and circumstances of each case determine whether or not an activity is a business.

You repay the credit by including it as an increase in tax on the return for the year you dispose of the home or it ceases to be your main home. However, if the home is destroyed or condemned, or you dispose of the home under threat of condemnation, and you do not acquire a new home within 2 years of the event, you must repay the entire repayment amount with the return for the year in which the 2-year period ends.

If you and your spouse claimed the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.

Exceptions.   The following are exceptions to the repayment rule.
  • If you sell the home to someone who is not related to you, the repayment in the year of sale is limited to the amount of gain on the sale as determined in Part III of Form 5405. The amount of the credit in excess of the gain does not have to be repaid. (See Related persons, later.)

  • If the home is destroyed or you sell the home through condemnation or under threat of condemnation, you do not have to repay the credit if you purchase a new main home within 2 years of the event and you own and use it as your main home during the remainder of the 36-month period. Under this exception, you must purchase a new main home even if the 2-year period ends after the end of the 36-month period. Also, there is no holding period for the new main home if you purchase it after the end of the 36-month period.

  • If the home is destroyed or you sell the home through condemnation or under threat of condemnation to someone who is not related to you and you do not acquire a new home within the 2-year period, the repayment with your return for the year in which the 2-year period ends is limited to the gain on the disposition as determined in Part III of Form 5405. The amount of the credit in excess of the gain does not have to be repaid. (SeeRelated persons, later.) Under this exception, you must make a repayment (limited to the gain) even if the 2-year period ends after the end of the 36-month period.

  • If the home is transferred to a spouse (or ex-spouse as part of a divorce settlement), the spouse who receives the home is responsible for repaying the credit if, during the 36-month period beginning on the purchase date, he or she disposes of the home or it ceases to be his or her main home and none of the other exceptions apply.

  • Members of the uniformed services or Foreign Service and employees of the intelligence community (defined later), and spouses of such individuals, do not have to repay the credit if they sell the home or the home ceases to be their main home because they received Government orders to serve on qualified official extended duty (see the instructions for line 2 below).

  • If you die, repayment of the credit is not required. If you claimed the credit on a joint return and then you die, your surviving spouse would be required to repay his or her half of the credit if, during the 36-month period beginning on the purchase date, he or she disposes of the home or it ceases to be his or her main home and none of the other exceptions apply.

Related persons.

Related persons include the following:

  1. Your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.).

  2. A corporation in which you directly or indirectly own more than 50% in value of the outstanding stock of the corporation.

  3. A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

For more information about related persons, see the discussion under Nondeductible Loss in chapter 2 of Pub. 544, Sales and Other Dispositions of Assets. When determining whether you acquired your main home from a related person, family members in that discussion include only the people mentioned in (1) above.


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