Repayment of the Credit
Repayment rules for 2008 purchases. For qualifying home purchases after April 8, 2008, and before January 1, 2009, the first-time homebuyer credit is repaid ratably over 15 years, with no interest charge. If a first-time homebuyer credit was allowed to a taxpayer, the taxpayer's income tax increases by 6⅔% of the amount of such credit for each taxable year in the 15-year repayment period. The repayment period began with the second taxable year following the year of purchase for which the credit was taken.
- Example – A taxpayer was allowed a $7,500 first-time homebuyer credit in 2008. The taxpayer must repay the credit amount by adding $500 (which is 6⅔% of $7,500) to his or her income tax liability each year for 15 years, beginning in 2010.
- Acceleration of repayment – If a taxpayer disposes of the home for which a first-time homebuyer credit was allowed, or the taxpayer (and the taxpayer’s spouse, if married) ceases to use the home as a principal residence before the end of the 15-year repayment period, the remaining credit repayment amount is added to the income tax liability of the taxpayer for the year of disposition or cessation of use.
Repayment rules for post-2008 purchases. For qualifying purchases made after 2008, the general repayment requirement of the first-time homebuyer credit is waived. However, the accelerated repayment rule applies if the taxpayer disposes of the home, or the taxpayer (and the taxpayer’s spouse, if married) ceases to use the home as a principal residence during the 36 months after the purchase of the residence. The entire credit must be repaid on the return for the year in which the sale occurs or the use as a principal residence ceases.
Exceptions to the repayment. In the case of a sale of the principal residence to an unrelated person, the increase in tax due to accelerated repayment is limited to the amount of gain (if any) on such sale. For purposes of calculating gain, the adjusted basis of such residence shall be reduced by the amount of the first-time homebuyer credit allowed, to the extent not previously repaid. In the case of an involuntary conversion, repayment is not accelerated if a new principal residence is acquired within a 2-year period. No amount must be repaid after the death of the taxpayer.
For more detailed information on the first-time homebuyer credit, refer to the Form 5405 Instructions, the First-Time Homebuyer Credit: Questions and Answers, and additional topics on this subject, on the IRS website at www.irs.gov.
Page Last Reviewed or Updated: September 09, 2013