Repaying the First-Time Homebuyer Credit and Understanding your IRS Notice
I've already received my credit or refund. Why is the IRS sending me this Notice?
The IRS is notifying taxpayers who claimed the first-time homebuyer credit of the repayment requirements. The letters explain if and when you have to repay the credit. There are different IRS letters for different situations, including a purchase of a home in 2008, in 2009 or 2010, a sale of a main home, or a change in the use of the main home.
You purchased your home in 2008.
In the fall of 2010 or the first year after you claim the credit, and every year until the credit is repaid, the IRS will send you Notice CP03A, Repaying your First-Time Homebuyer Credit. This notice lists the amount of the credit you received and the amount you have to repay as additional tax.
You add the amount you have to repay to any other tax you owe on your federal tax return. This could result in an additional tax owed or a reduced refund. To repay the credit, you must attach a completed Form 5405 to your federal tax return. For example, if you bought a home in 2008 and claimed the maximum credit of $7,500, the repayment amount is $500 per year. If you stop using the home as your main home, generally you must repay the entire remaining amount of the credit for the year the home is no longer your main home. There are some exceptions to this rule.
You will receive a similar notice each year reminding you to add the repayment to your tax return and letting you know the remaining amount of the credit you must repay. The notices stop the year after you fully repay the credit, or, you sell your home, or the home no longer is your main home and you report the sale or other disposition on a completed Form 5405 attached to your tax return.
This letter also reminds you of what to do if you sold the home or it is no longer your main home. Find more information here on Repaying the Credit if your home is no longer your main home.
You purchased your home in 2009 or 2010.
For the three years after you receive the FTHBC, the IRS sends you a letter called a Notice CP03B, Courtesy Message About your First Time Homebuyer Credit. This notice lets you know what to do if you sell the home or it is no longer your main home. Generally, you must repay the entire credit for the year you sell the home or it is no longer your main home. There are some exceptions to this rule, however, and you do not need to repay the FTHBC for a home you purchased in 2009 or 2010 if it remains your main home for the three years after the purchase. To repay the credit, you must attach a completed Form 5405 to your federal tax return for the year the home stops being your main home. Find more information here on Repaying the Credit if your home is no longer your main home.
You sold your main home or the home is no longer your main home.
You must report the sale or other disposition of your main home on a completed Form 5405 and attach it to your tax return for the year of the sale or other disposition. The IRS matches information from a variety of sources when your home is sold, destroyed, foreclosed on, or is no longer your main home. If you received the FTHBC and the IRS has information that the home is no longer your main home, the IRS checks your tax records to find out if you reported the sale or other disposition on the Form 5405. You may or may not have to repay the credit, but you do need to report the change to the IRS on the Form 5405. The IRS sends you a CP03c Notice when it has information your home is no longer your main home and you did not report the sale or other disposition on your federal tax return. This notice reminds you to report the sale or other disposition of your home on the Form 5405.
Here is your CPO3c sample notice.
|
IF |
AND |
THEN |
|---|---|---|
|
You bought a home in 2008 and received the First Time Homebuyer Credit |
You sell the home to a related party within the next 15 years |
You must repay the full amount of the credit, reduced by any amount of the credit that you previously repaid. You must complete the Form 5405 and attach it to your federal tax return for the year you sold the home to report that you sold the home and to repay the unpaid balance of the credit.* This is required whether you had a gain or a loss on the property. |
|
You bought the home in 2009 or 2010 and received the First Time |
You sell the home to a related party within 36 months of buying the home |
You must repay the full amount of the credit. You must complete the Form 5405 and attach it to your federal tax return for the year you sold the home to report that you sold home and to repay the credit*. This is required whether you had a gain or a loss on the property. |
|
You bought your main |
The home is destroyed or condemned and you do not replace it by rebuilding or buying a new main home within two years of the event |
You must repay the full amount of the credit. You must complete the Form 5405 and attach it to your federal tax return for the year of the destruction or condem-nation of the home to report the destruction or condemnation. You must also complete another Form 5405 and attach it to your federal tax return for the year in which the two-year period ends to report that you did not replace your main home within the two-year period and to repay the unpaid balance of the credit.* |
| You bought your home in 2008, 2009 or 2010 | You convert the home entirely to a business or rental property | You must repay the full amount of the credit. You must complete the Form 5405 and attach it to your federal tax return for the year you convert the home to report that you converted the home and to repay the unpaid balance of the credit.* |
| * You add the amount of FTHBC you must repay as an additional tax on your federal tax return. The amount may reduce your refund or increase the amount of tax you owe. | ||
What to Do if You Receive a Notice
- Read your notice carefully.
- Review the situations listed in your notice to see if you need to repay a part of the credit or the entire credit.
- Keep the notice with your important tax return papers.
- Bring the notice with you when you get your tax return perepared.
How to Get Help
-
If you have the notice, call the number listed on the top right corner of your notice; it's the fastest way to get your questions answered.
-
Consult your tax return preparer and/or authorize someone (such as your tax preparer) to contact the IRS on your behalf.
-
You may qualify for help from a Low Income Taxpayer Clinic. Here is help in locating a Low Income Taxpayer Clinic in your area.
What to Do if You Lost or Didn't Receive a Notice
- Make sure the Post Office and the IRS have your correct address.
- Consult your tax return preparer.
- Call the IRS toll free number 1-800-829-1040 for assistance.
Additional Resources:
- Form 5405 - First-time Home buyer Credit and Replayment of the Credit and Instructions
- Publication 530 - Tax Information for Homeowners
- Publication 523 - Selling your Home
- Publication 17- Your Federal Income Tax
Return to First-Time Homebuyer Credit home page.
