Repayment of the Credit
General repayment rules for 2008 purchases. If a taxpayer was allowed the first-time homebuyer credit for a qualifying home purchase made between April 9, 2008, and December 31, 2008, the taxpayer generally must repay the credit over 15 years. To repay the credit, the taxpayer must increase the Federal income taxes by 6⅔% (or 1/15) of the amount of the credit for each taxable year in the 15-year repayment period. The repayment period begins with the second taxable year following the year of qualifying home purchase. There are exceptions that may require a taxpayer to accelerate the repayment (discussed later).
- Example – A taxpayer was allowed a $7,500 first-time homebuyer credit for 2008. The taxpayer must repay the credit. The taxpayer's 15-year repayment period started with 2010, the second taxable year from 2008. To repay the credit, the taxpayer must add $500 (which is 6⅔% of $7,500) to the Federal income tax for each taxable year in the repayment period.
General repayment rules for post-2008 purchases. For qualifying purchases made after 2008, the repayment requirement of the first-time homebuyer credit is generally waived. There are exceptions that may require a taxpayer to accelerate the repayment (discussed later).
Acceleration of repayment. In general, in the case of a home purchased in 2008 for which a taxpayer receives the first-time homebuyer credit, if the taxpayer disposes of it, or the taxpayer (and, if married, the spouse) stops using it as a principal residence in any taxable year during a 15-year repayment period, the credit repayment is accelerated. Similarly, in the case of a home purchased after 2008 for which a taxpayer receives the credit, if the taxpayer disposes of it or the taxpayer (and, if married, the spouse) stops using it as a principal residence within 36 months from the purchase date, the credit repayment is accelerated.
A taxpayer subject to accelerated credit repayment must increase the Federal income tax for the year of disposition or cessation of use by the amount of any excess of the credit allowed over the sum of the additional taxes paid under the credit repayment requirement. However, there are exceptions.
In the case of a sale of the home to an unrelated person, the increase in tax due to accelerated repayment is limited to the amount of gain (if any) from the sale. To determine the gain for this purpose, a taxpayer must reduce the adjusted basis in the home by the amount of the first-time homebuyer credit that has not been repaid.
In the case of an involuntary conversion of the home, the accelerated repayment requirement does not apply if a taxpayer acquires a new principal residence within two years from the date when the disposition or the cessation of use occurs. The general repayment rules apply to the new principal residence as if it were the converted home. If a taxpayer dies during a repayment period, no credit repayment is required for the year of death or any subsequent taxable year.
Reporting the repayment. If required to repay the first-time homebuyer credit, a taxpayer must file the Federal income tax return, even if the gross income does not exceed the return filing threshold. A taxpayer who made a qualifying home purchase in 2008 and owned and used the home as a principal residence in all of 2014 must enter the additional Federal income tax on Form 1040 (PDF), line 60b. The taxpayer does not need to attach Form 5405 (PDF), Repayment of the First-Time Homebuyer Credit. If the taxpayer disposes of the home or if the taxpayer (and, if married, the spouse) stops using it as a principal residence in 2014, the taxpayer must attach a completed Form 5405 to Form 1040.
More Information. For more detailed information on the first-time homebuyer credit, refer to the Form 5405 Instructions (PDF) and First-Time Homebuyer Credit: Questions and Answers on IRS.gov.
Page Last Reviewed or Updated: February 04, 2015