Repaying the First-Time Homebuyer Tax Credit

Home

Did you take advantage of the First-Time Homebuyer Tax Credit in 2008? If so, congratulations. But if you sold your home in 2011, beware. You may be in for a tax surprise. Here’s why.

First-Time Homebuyers Tax Credit
First-Time Homebuyers Tax Credit

Under 2008 legislation designed to stimulate the housing market, first-time homebuyers could claim a tax credit of up to $7,500 if they purchased a home between 4/8/08 and 12/31/08. But there was a catch: the credit wasn’t a gift from the government, it was really an interest-free loan that had to be repaid over fifteen years, beginning in 2010.

So, beginning in 2010 you had to file Form 5405 with your tax return each year and add 1/15 of the credit to your taxes owed. For example, if you received the maximum credit of $7,500, you’d divide that credit by 15 and add $500 to your income taxes each year for the next 15 years.

But here’s the problem – most people don’t stay in their home for 15 years. And when you sell your home, the remaining unpaid tax credit is added to your taxes for that year. So if you claimed the $7,500 credit in 2008, repaid $500 with your 2010 tax return, and sold your home in 2011, be prepared for an additional $7,000 tax bite when you file your tax return in April. Ouch!

What if your house didn’t increase in value, and you end up making next to nothing on the sale? Recognizing that the credit repayment could easily exceed the amount you realize, the IRS caps the amount you owe in recapture to the amount of the gain you realize. So if you bought your home for $150,000 and your sales proceeds after costs of sale are only $152,000, the maximum credit you’d have to repay is $2,000.

Here’s another trap to beware of. You don’t have to sell the home to become liable for the tax credit repayment. You can trigger the tax recapture by moving out of your home, even if you continue to own it. So if you moved out in 2011 and kept the home as a rental property, boom – you owe the rest of the tax credit with your 2011 tax return.

Fortunately the IRS has some mercy when circumstances are beyond your control. For example, if you deed your home to your spouse in a divorce settlement, there’s no recapture of the tax credit (but your spouse does have to repay the credit over the remainder of the fifteen years and triggers the recapture if he or she moves out within the 15-year period).

If you lose your home in a foreclosure, your repayment is limited to the amount of the gain. And if you die, you are off the hook as well. And if you or your spouse are in the military and sell because of an order to relocate for extended duty, you don’t have to repay the credit.

The 2008 credit had its traps and pitfalls, but it did help people buy the house they wanted and stimulated home sales. That’s why Congress later extended it to 2009 and 2010. Sorry to say, this isn’t a case where the early bird gets the worm.

When the credit was extended, it was increased to $8,000, expanded to include a reduced credit for those who were not first-time homebuyers, and only has to be repaid if the taxpayer moved out within three years. Unfortunately, those features were not applied retroactively to 2008, leaving early-adopters with an obligation to repay the tax credit that those who came later to the party didn’t have to.

Comments (67) Leave your comment

  1. Do you know what the amount due back to IRS would be of I purchased home in 08 for 72000 and I am selling it this year for 60000 after closing costs and realtor fees we will not even get back what we put down on our house.

  2. I was wondering if I can claim the repayment as a tax deduction since I have converted my property to a rental?? Why not…right? It is afterall money lost…. the IRS employees know little to nothing about the 2008 credit because it was such a small time frame! also does anyone know the status of this petition… is Congress even considering letting us not pay it back?

  3. I just received a letter from the IRS about my incomplete 2013 taxes. Form 5405 was never submitted by TurboTax for some reason? I do not know how to submit this? Do I do it myself? Or do I need TT to submit it?

    I know I correctly stated that we received the first time home buyer tax credit… my refund was reduced by $500 showing that TT knew that I made the correct claim.

    So what do I do next?? I have 20 days to respond?? Is there an email contact or phone # for support????

    1. I had this same issue. I received a letter from the IRS stating that I owe $271 due to a potential miscalculation on form 5405. Can someone from Turbotax please respond to this question? I’m frustrated that your software didn’t file form 5405 correctly.

    2. Have you guys received any further information on this issue? I also received that letter and was reviewing it since it is due next week. According to my 1040 I paid but I don’t see this form 5405. I have no idea what to do and don’t really want to give the IRS money that I already have.

      Thanks

  4. Let me see if I am understanding this correctly. If I got the tax credit in 2008 and sold my house in 2013 I have to pay everything back but if I would have got the tax credit in 2009 and sold my house in 2013 I wouldn’t. Is this crap right because if it is that is messed up.

  5. Per this article, buying a home between 4/8/08 and 12/31/08, you’d have to repay the homebuyer credit. We purchased our home in January of 08 and we started renting the home out last summer…while doing my taxes this season it stated that we had to repay the remainder of the tax credit back. Are the dates accurate in this article? Why, then, do they require a repayment of the credit if we purchased before the April 8th date? Who do I call to inquire about this?

    1. Hi Lisa, The 2008 first-time homebuyer credit was only for homes purchased between 4/8/08 and 12/31/08. The credit is repaid in 15 equal installments beginning with 2010 tax returns. If you received the homebuyer credit ($7500) even if you weren’t eligible, you would still need to repay the remaining amount since you stopped using the home as your main home.

      Hope this answers your question.
      Lee

  6. My husband purchased house in 2008 and received first time buyer credit. I moved out in 2012 and as per our agreement, and because my name was never on the mortgage/deed, he kept the house and all repayment responsibilities. Must I attach form 5405 to my taxes because my return got rejected stating this repayment. Please advise and thanks.

  7. Hi Lisa,

    We received homebuyer tax in 2008. In October 2012 we sustained hardship. We tried short sale of home to no avail. We are now going for deed in lieu of and will need to vacate home soon. Due to hardship, is it possible to have this debt waived as it is due to circumstances beyond our control?

    Any advice you can provide is appreciated.

    Donna

  8. Hello Lisa,

    I received the first time homebuyer credit in 2008. I sold the home in 2012 and got assistance from a tax professional to file my 2012 taxes. This year when I tried filing my taxes myself for 2013, I realized that the tax professional did not file the form 5405 with the information that my home sold in 2012 at a loss. What do I need to do in this case?

  9. I received the FTHB credit and I was paying back loan to IRS every year. In 2012, I sold out my house and I lost my money. When I filed my taxes for 2012, the turbotax software said I don’t need to pay the loan. I didn’t pay the loan in 2013 tax returns and IRS didn’t say anything. In 2014, I got a letter from IRS that I have not included the payment in 2013 tax returns and they adjusted the amount from my tax refund. Do I need to submit 5405 form every year?

  10. MY HUSBAND RECIEVED THE FIRST HOME OWNER CREDIT BUT AT THE TIME WE WERE NOT MARRIED. MY QUESTION IS WE FILE SEPARTLEY AND HE ALREADY PAID THE CREDIT BACK BUT NOW iM TRYING TO FILE AND ITS REJECTING IT BECAUSE IT SAYING I NEED TO PAY INTO THIS HOME OWNER CREDIT TOO. BUT I DONT THINK I NEED TOO SINCE HE HAS ALREADY DONE IT WHAT SHOULD I DO??

    1. can a huband and wife file separate on the first
      home buyer credit of 2008 after they have been
      paying back the loan 4 years jointly as they started. So that the loan could be split up and
      so one of the spouses could pay off their half
      and being free of the commitment and also it
      could make the payments easier to pay at half
      the payment. we are almost 60 and disabled
      and need a better way to get this paid.

  11. I am selling my home for $145K and I bought it for $145K 6 years ago with the $8000 tax credit. I have repaid $2000 already with our annual payments. Since we’re not making any money on the sell of our home, will we get back the $2000 we’ve already paid?

  12. What if the IRS never sends you a form to attach to my taxes? I owe for the first time home owners due to the fact that I went through a divorce and it went into foreclosure. Last year they let me file and took it out of my taxes but it took me 3 months to get what little I did get. This year my X and I both can not file because it says we have to add the first time home buyers payment, but can not get the irs to help or send us a form. .HELP PLEASE…..

    1. Their is a calculator to find out how much your repayment obligation is on the irs.gov website. Make sure you double the amount it gives you if you claimed it jointly with a spouse.

  13. I bought a house with my boyfriend in 2008 and claimed the interest free loan of $7500, I moved out in January 2013 and he refinanced the house and took me off the loan, we never filed jointly and I took the credit, do I repay or I do transfer over the repayment to him. Help

  14. I bought my house in 2008, claimed the first time homebuyers credit, then got orders to Korea in 2010, I became inactive reserve in 2011, with orders to kentucky, my mother, who is my dependent lives in the house and i pay for her upkeep and other maintenance costs. Do i have to pay back the credit?

  15. I looked into it some more and answered my own question. When you are filing taxes this year you need to include the IRS FORM 5405

    http://www.irs.gov/pub/irs-pdf/f5405.pdf

    If you sold your house and made a gain then you have to repay a certain amount. If you sold your house and had a loss then NO REPAYMENT is needed. Just follow the link. I hope this helped someone!

  16. We bought our home in 2008 and got 7500 credit. We bought our home for 250,000 and had to short sale it for 152,000 last year. Would the IRS take all of it when we file this year or are we exempt from paying it back?

  17. We received the FTHBC in 2008…got divorced 2012 and ex wife kept the house as part of divorce….house forclosed in 2013…my return was amended for 2012 becauwe I had to pay the $500 repay amount…do I need to repay anything on my 2013 taxes? Thank you.

  18. I bought my house in 08 and got $6800 FTHB Credit for it. I then bought a new house in 2013, and found some tenants and started renting it out. I was wondering since its past the 36 month period do I still have to pay it back? And if so can you do it in payments or do you have to do it all at once?

    1. Hi there…actually, yes. You must pay back the FTHB credit (the one from 2008) in full if your home is no longer your primary residence. For you, that means whatever you still owe is due when you file this year. Stinks, I know.

  19. I purchased a house in 2008 and sold it in 2009. I did receive my first time home buyer credit. However, I renovated the house and lost money on the sell. I wired the difference from the cost of the home to the selling amount to the renovation company as a partial payment and also wrote them a check for the remaining amount due. Overall, I lost roughly $10,000. I heard that if you loose more than than the $7,500 credit, then you don’t have to repay it. However, the IRS sent me a bill this year, 2013, for $500 for the credit repayment. So, first off, they haven’t acknowledged that I sold the house and second, they are still wanted payment even though I lost over $7,500 on the house. If you can provide any details on this, I would appreciate it. I guess my questions are, Is it true I don’t have to pay it back if I lost more than the credit when I sold the home? And, how do remedy this?

  20. My divorce should be final in november. I am from TN and i was wondering when I file my taxes if I can claim my son, it says I can in the divorce. But I wasn’t for sure if it starts in 2013 or 2014 since we were married most of the 2013 year. And I bought my husband out I borrowed 45,000. for the house can I claim as first time home owner?

  21. Hi- I received the FTHB credit when I purchased my home in November of 2008 for $7500 and started making payments on my 2010 taxes. When I got married in 2011, I moved out and used the apartment as a rental property at which point I repaid the remaining balance of $6500 on my 2012 joint tax return with my husband. However, we recently received a statement from the IRS refunding us $7000 for the FTHB credit but giving us a vague explanation as to why. I am pretty sure we did not qualify for the waiver (as I did not sell the apartment at a loss, did not die, nor get a divorce). Unless there is a loophole I am unaware of, why did I receive this $7000 refund and why was it $7000 and not $6500? Our CPA says to take the refund for the time being and deal with it later, if necessary. Has anyone gone through this? Will we get penalized if the IRS realizes it was a mistake on their part and asks for the money back?

  22. I bought my house in June 2010 and I’m trying to sell my house this coming July do I need to repay the $8000.? I’m a first time buyer

  23. What happens of a non-relative assumes my mortgage. Do I pay the credit back? Also what happens of we bought the house for 62k and took out a 203k mortgage for 30k to help with repairs. We sell for 92 do we still owe?

  24. I got the FHB in 2008. I started renting my home in 2011 so I had to pay the whole credit back on my 2011 taxes. I input that into turbo tax and it just put a 0 on my return. Now my taxes are on hold since 3 March because of the FHB not being on my return. What happens now? Do they just look back at my last years return to see that I paid it already?

  25. I got the credit in 2008. The house was foreclosed on in 2012. There was no loss or gain. Turbo Tax and every other e-file out there insists I have to pay this back and I don’t. I’m at my wits end.

  26. We just returned from our tax preparer’s office disappointed and frustrated. We lost our home to foreclosure last year due to my husband’s job loss. We received the 2008 tax credit of $6500 for 1st time home buyers. We just found out we have to repay the balance now. We dont have $5500. If we had that kind of money, we wouldnt have lost our home. Any help out there for this type of situation?

  27. I bought a house with another person back in 2008. We never filed jointly since we were never married. My ex filed for the first time home buyer credit on his taxes. I moved out in 2010 and released all my interest to the house to him. When I filed for taxes this year the IRS took the $500 payment. Should the repayment be paid by my ex?

  28. This is the first year we have used turbtax and I am confused on this section. We bought our house in Sept. 2008 and recieved a $6,500 tax credit. We sold our house in Aug. 2012 and now we have to pay it all back at once? I thought we only had to do that if we lived in it less than 3 years???

  29. Mark D,

    From everything I have seen, you can do a payment plan with the IRS but there is interest involved. It really bugs me that if you got the same credit in 2009 you don’t have to pay it back at all but those of us from 2008 don’t get that same benefit. So stupid. Not sure why it was called a credit when the reality is it is a loan with penalities if you dare move within 15 years.

    You can sign a petition about the credit here: http://www.petition2congress.com/2148/petition-7500-tax-credit/

    That is really the only good thing I have found.

    1. Hello Mark,
      I agree and have tried doing something about in the past, before S.Frank Lautenberg of NJ passed away. I’m glad to know there is a petition out there to sign. Thanks for the information.

  30. Same problem as Carrie here:

    Hi,

    We moved and are renting the home we got the credit for.. but we didn’t know we would have to pay it back in a lump sum. Does the IRS offer any sort of payment plan for it? Is there some way we can still pay it back in increments?

    Help!

    1. Thanks a lot, Carrie! So did you hear whether you have an extension or anything yet? I am dealing with the same issue, and am trying to find out how long I should wait before filing my taxes… Any help would be greatly appreciated. Thanks, again!

  31. Can I file my taxes using Turbo Tax if I have the first time home buyers credit from 2008 or do I need to go to a specialist?

  32. Great, so I owe an extra $6500 this year if I’ve moved out but haven’t sold my house yet? Now I have 2 mortgages and an extra tax payment. Why is it that every time I turn around it seems as though the government is really trying to force me into a hardship where I’ll really need their help.

    1. Re: 2008 credit- Did Brad get an answer to his question? If I have the house for sale in 2012, due to a job move, does that trigger the recapture of the credit? House sold in 2013 for a loss…if I do not have to recognize the credit in 2012 (even though I moved out), it would appear that I would not have to recapture the credit in 2013 due to the loss on the sale. Does the move immediately trigger the recapture, even though I was trying to sell the house?

  33. Hello,

    I took advantage of the 2008 FTHB credit. I have already started the repayment plan. Only thing is that I totall forgot to include the repayment of 500 dollars in my tax return. The return was accepted by the IRS so does that mean that I have to do an amendment or will the IRS automatically correct it and deduct they payment? Please let me know.

    1. Hey EH,

      I did the same thing last year with the FTHB. Did you get a reply yet? I’m thinking of putting 1K on the 5405 Form this year to make it up.

      Any input would be great!
      JAM

    2. have you received your refund back yet? I also forgot add the repayment fee of $500 and now it will be an even longer delay from what the lady at irs said. i just got off the phone

  34. I bought my house in 2008 for 320k, I got the 7,500 first-time home buyer tax credit, I’ve been paying $500 for each year, but my house was shortsale in september 2012 for $118K, what happens with the remaining balance of the tax credit? do I have to pay it off in full on my 2012 tax retun? or is waved because of the shortsale?

  35. Hi. Got the credit for a home purchased in 2009. Home foreclosed in 2012 significantly below value paid. Do I need to repay this tax credit still since it was less than 36 months?

  36. Hi,

    We moved and are renting the home we got the credit for.. but we didn’t know we would have to pay it back in a lump sum. Does the IRS offer any sort of payment plan for it? Is there some way we can still pay it back in increments?

  37. I took advantage of the First-Time Home Buyer tax credit in 2008. In Dec 2011, I had to relocate for a job and immediately put my house on the market. My house has been on the Market for a year and has not sold. I did not convert it to a rental property. Will the IRS grant me any forgiveness on repayment? Give me another year to repay? I plan on converting my house to rental this year because it didn’t sell, but for 2012, do I have to repay the entire balance on the loan? It would be great to have a year of rental income on the property before having to pay off the loan.

  38. Can anyone tell me if you have to repay the tax credit in full if you are military and receive orders to move? We did not sell our house and are renting it. I’m wondering if there is an exception for military families because there is no way we would be in one place for 15 years. Thank you

      1. Hi TurboTaxLisa,

        My husband and I bought our house with the military extension and we should not owe anything on May 3, 2013, since it will have been 3 years that we’ve lived in the house at that point. He is getting PCsed to Korea for a year in February, but we would actually like to get a divorce and give the house to me. Do we need to wait until after May 3, 2013, or are we free and clear of owing the credit back? Any help or links would be greatly appreciated.

  39. I’m having trouble finding information on what’s the status of the first-time home buyers tax credit for 2012? Is it still available and what are the rules?

    Janet

    1. Hi Janet,
      Unfortunately the First-Time Homebuyer credit expired in 2010 unless you were a member of the military. If you were a member of the military you had until 6/30/2011 to take advantage of the First-Time Homebuyer Credit.
      Thank you,
      Lisa Greene-Lewis

  40. Lisa,

    quick question! If we bought our house in 5/2008 and got the $7500, would we still have to pay it? Also, our house did drop in value, albeit a small amount.

    Hypothetically, if we bought the house for 100k, tax value dropped to 99k, we ow 94k.

    If we sold the home for 96k would we still owe the 2k? is that part of the ‘gains’ category?

    Thank you for the help in understanding tricky law!

  41. What happens if you have filed and you have direct deposit on you taxes and how do you amend the homebuyer credit that you owe and if the home is being short saled and not in foreclosure yet? How do you know how much you will still owe the government?

    1. Hi Terie,
      So I think you are saying you already filed your taxes and requested direct deposit, but need to amend your taxes for the homebuyers credit. You can still amend your taxes if you are getting a direct deposit, but if your home was not yet sold in 2011 you would not need to amend your tax return. If your home is being short saled or is foreclosed on this year, then you would start paying the credit back in the year your home is sold.
      Thank you,
      Lisa Greene-Lewis

      1. Yes that is what I am saying. I remembered that we had started the repayment last year as we received something stating we owed $250 I think to start that. But this time we did the taxes on line and did not see a form for that. We did have help but as you stated we have moved from the house and no longer live there.

  42. What should I do if I’ve already mailed in my tax refund and forgot to include the First Time Homebuyer Credit? Is it too late to mail in the 5405 or will IRS automatically deduct it from my refund?

    1. Hi Mary,
      If the homebuyer tax credit was excluded you should amend your tax return, but don’t amend your tax return until you find out if your tax return was accepted. If it is rejected then you just need to fix your tax return and not amend it.
      Thank you,
      Lisa Greene-Lewis

      1. Hi Lisa,

        I also forgot to include the payment for the homebuyer tax credit but it says my return was accepted, does that mean I will be getting my refund and they will just deduct the payment?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s