Repaying the $8,000 First Time Home Buyer Tax Credit

IRS Form 5405 First Time Home Buyer Credit

The IRS has issued form 5405, which you will need to fill out if you’re going to take the $8,000 first time home buyer tax credit. But Form 5405’s instructions include information on who can take the credit, how much can be taken and under what circumstances the credit must be repaid. This FAQ will help you sort out the details so you don’t run afoul of IRS rules.

Can I Take the First Time Home Buyer Tax Credit?

You qualify for the tax credit if you bought your main home (defined as a house, condo, co-op, house boat, house trailer, or other form of dwelling) on or after April 8, 2008 through December 31, 2008 and before December 1, 2009. You must be a first-time buyer or have not owned a home during the past three years.

If you bought your first home in 2008, you qualify for a $7,500 tax credit, which is actually more like an interest free loan. It must be repaid in $500 installments over 15 years.

If you bought your first home in 2009, you qualify for up to an $8,000 tax credit, which does not need to be repaid, except in certain circumstances (see below).

Either way, the tax credit is structured as the lesser of 10 percent of the purchase price of the home or $7,500/$8,000 (depending on the date).

You are allowed the full amount of the credit if your modified adjusted gross income (MAGI) is $75,000 or less ($150,000 or less if married filing jointly). The phase-out of the credit begins when your MAGI exceeds $75,000 ($150,000 if married filing jointly). The credit is eliminated completely when your MAGI reaches $95,000 ($170,000 if married filing jointly).

I Owned a House and My Wife Wasn’t On Title or The Mortgage. Will She Qualify as a First Time Buyer?

IRS law defines a first-time home buyer as someone who has not owned a principal residence during the three-year period prior to the purchase. If you’re married, the law requires neither you nor your spouse to have been homeowenrs for the prior three years. However, if you’re unmarried partners, and one of the partners qualifies as a first-time home buyer, that person may receive up to a $4,000 tax credit.

I Own a Vacation Home. Am I Still A First-Time Buyer?

Ownership of a vacation home or a rental property does not disqualify you as a first-time buyer in the eyes of the program. You must have owned a principal residence.

What Are The Residency Requirements For the Tax Credit?

You must live in the property as your primary residence or “main” property. The IRS defines “main property” as a house, houseboat, housetrailer, cooperative apartment, condominium, or other type of residence. If you are building or buying new construction, the date of occupancy is the date which you can count for the tax credit. For most home buyers, this will be the date you close on the house and move in, not the date you close on the construction loan or sign the contract.

You must live in the property as your primary residence or risk having to repay some or all of the tax credit.

Who Cannot Claim The ,000 Tax Credit?

According to the IRS, you cannot claim the $8,000 tax credit if:

  1. Your modified adjusted gross income is $95,000 or more ($170,000 or more if married filing jointly).
  2. You are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any tax year. This rule does not apply for a home purchased in 2009.
  3. Your home financing comes from tax-exempt mortgage revenue bonds. This rule does not apply for a home purchased in 2009.
  4. You are a nonresident alien.
  5. Your home is located outside of the U.S.
  6. You sold the home, or it ceased to be your main home, before the end of 2008.
  7. You acquired your home by gift or inheritance.
  8. You acquired your home from a related person, including your spouse, ancestors (parents, grandparents, etc.), or lineal descendants (children, grandchildren, etc.); A corporation in which you directly or indirectly own more than 50 percent in value of the outstanding stock of the corporation; A partnership in which you directly or indirectly own more than 50% of the capital interest or profits interest.

Do I Have to Repay The ,000 Tax Credit?

Homes purchased in 2008. You generally must repay the credit over a 15-year period in 15 equal installments. The repayment period begins in 2010 and you must include the first installment as additional tax on your 2010 tax return.

If your home ceases to be your main home before the 15-year period is up, you must include all remaining annual installments as additional tax on the return for the tax year that happens. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation. If you and your spouse claim the credit on a joint return, each spouse is treated as having been allowed half of the credit for purposes of repaying the credit.

Example 1. You claimed a $7,500 credit on your 2008 tax return. You must include $500 ($7,500 4 15) as additional tax on your 2010 tax return and on each tax return for the next 14 years.
Example 2. You claimed a $7,500 credit on your 2008 tax return. In 2009, you sold the home to your son. You must include $7,500 as additional tax on your 2009 tax return.

Exceptions. The following are exceptions to the repayment rule.

  1. 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. When figuring the gain, reduce the adjusted basis of the home by the amount of the credit you did not repay.

  2. If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you continue to pay the installments over the remainder of the 15-year repayment period.

  3. If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for making all subsequent installment payments.

  4. If you die, any remaining annual installments are not due. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the remaining repayment amount.

Homes purchased in 2009. You must repay the credit only if the home ceases to be your main home within the 36-month period beginning on the purchase date. This includes situations where you sell the home, you convert it to business or rental property, or the home is destroyed, condemned, or disposed of under threat of condemnation. You repay the credit by including it as
additional tax on the return for the year the home ceases to be your main home. If the home continues to be your main home for at least 36 months beginning on the purchase date, you do not have to repay any of the credit.

If you and your spouse claim 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.

  1. 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. When figuring the gain, reduce the adjusted
    basis of the home by the amount of the credit.

  2. If the home is destroyed, condemned, or disposed of under threat of condemnation, and you acquire a new main home within 2 years of the event, you do not have to repay the credit.

  3. If, as part of a divorce settlement, the home is transferred to a spouse or former spouse, the spouse who receives the home is responsible for repaying the credit.

  4. If you die, repayment of the credit is not required. If you filed a joint return and then you die, your surviving spouse would be required to repay his or her half of the credit.

For more details, see IRS Form 5405

Read More About The 00 First Time Home Buyer Tax Credit

Proposed Legislation Would Expand The Tax Credit

,000 Tax Credit Relief New Construction Completion Date is Key


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28 Responses to Repaying the $8,000 First Time Home Buyer Tax Credit

  1. Greg says:

    My wife and I purchased a home in 2009 and received the $8000 tax credit. We were divorced and I retained the house and have since been layed off due to “economic reasons” from my company. (A great year.) I am only 15 months into my mortgage. I don’t want to move and am trying not to, but I’m trying to plan some scenarios for the future. SO Will I be liable to pay back the $8000 if I NEED to sell it due to this divorce and loss of job? If so what happens? Thanks in advance!

  2. Fred says:

    The week that my wife and i meet and started dating, she bought a house and i started to build a house. So we both got the 8000 dollar tax credit. We just recently got married and don’t really want to sell either house , don’t know if we have to give back the one of our 8000 dollar credits or not? And if we do, how does that work? Just have to come up with 8000 dollars?

  3. tommy says:

    we received the 2008 home owners credit of $7500.00. this year we had to file bankruptcy. do we have to repay the credit?

  4. Christy says:

    I purchased my home in early 2009 and then had to relocate due to a job transition. Are there repayment options for paying back the $8000 tax credit since I am now renting and no longer using this for my primary residence?

  5. Sarah says:

    I am transferring military units, I purchased my home 1 year ago with the full $8000. Will I have to repay the credit if I am PCSing to another unit?

  6. April says:

    I purchased my home a year ago, and I might have to sell it next summer. When figuring out the “gain” I make on the house, do I factor in Realtor fees, closing costs, or any other costs associated with selling a home? For example, if I bought my house for $250,000, and I agree to a price of $270,000, I would have about $16,200 in Realtor fees. This brings my true “gain” to $3800. Can I factor in those fees & other expenses when calculating my gain?

  7. Carol says:

    My son’s friend purchased a house in 2009 and received the tax credit. They have had 2 different incidents in 6 months which the law had to be called for their safety (nothing to do with them) and no longer feel safe in that neighborhood. Is there any exceptions to the payback in this kind of situation?

  8. Paulie says:

    My wife and I purchased a house in Nov 2009, we are now getting a divorce. Divorce will be effective Q1 2011. We filed our taxes jointly, so the $8,000 check came in both of our names.

    So the scenario is – A married couple gets a divorce and the title is transferred to spouse #1, and spouse #1 who received the title continues to reside in the home as their principal residence. Does spouse #1 have to repay the full $8,000 credit? Or does spouse #1 only have to repay half of the credit, due by spouse #2 who has now moved out?

    Any insight would be greatly appreciated.

  9. Mike says:

    We purchased our first home in Oct 2009, but I have recently taken a new job out of state so we will have to sell our home and move. Will we have to repay the tax credit?

  10. june says:

    It is terrible that the 2008 first homebuyer tax credit must be repaid. Great way to take advantage of first time homebuyers. My realtor used the tax credit to her advantage saying oh you will get a tax credit of $7500, never mentioning it must be repaid. This added to the pressure of my purchase in 2008. It is not fair that the rules changed in 2009 and that a few months makes a difference whether the credit needs to be repaid. If 2009 buyers do not have to repay, neither should 2008 buyers. Calling something a credit is misleading if it needs to be paid back. I cannot think of any other credit by the IRS that needs to be paid back. If I knew the credit was not really a credit in 2008, it would have contributed more realistically on my decision to buy. The government and realtors duped people into buying in 2008 with hyped up talk of this phony credit. They suck!

    I think this was Misleading and Unfair practice by everyone involved. The 2008 “tax credit” was not a tax credit. It was a loan and should have been called that from the start. The IRS and realtors shouted tax credit but kept the repayment part hush-hush until 2009.

  11. Jon says:

    I purchased a house in April of 2010 and received the $8,000 tax credit. I am now in a position where I have to move out of the state for my job. Thus, I will have to sell my house. I know that I must pay back the entire $8000. My question is if I sell my house for $8,000 dollars less than I purchased it for am I still liable for repayment of the tax credit? I am trying to sell my house fast so I have listed it at a lower cost.

  12. Emily says:

    I received the 8k tax credit and am now wanting to sell. I understand you reduce the basis of the home by 8k, so if I purchased the home for 83k do I have to sell it for 75k. or just only net 75,000.00 in order to not have to re-pay the 8k? I also heard as long as you don’t gain more than 8k on the sale you don’t have to re-pay the credit. Is this true?

  13. Heather says:

    Ok so here is my real question we bought our house in Jan of 2009 and claimed the intial credit of 7500 ..on our taxes . Then Obama signs a new bill extending the credit to 8000 and you dont have to pay it back .. I amended my taxes and recieved my additional 500 credit yet i still i get letters from the IRS saying we need to start to paying back this year on our taxes.. how do i fix it ?? We still live in this same house , not divorced and dont plan on moving any time soon , love the house please help..

  14. Karen says:

    Anyone who purchased a home in 2008 is affected by this injustice RIGHT NOW. What can be done to fight this as a group? How can we fight this?

  15. Andrew says:

    I would like to convert part of my home (not the entire home) for business use, and I still live in the same home as my main home. Based on this description, I do not think I have to repay the $8,000 credit. Is that correct?

  16. Will says:

    I bought my 1st house 15 months ago. Now my job is moving, its either that or find a new job so I have to pay back the 8000.00 if I sell???

  17. ST says:

    Will,
    If you make no money from the sale of your home, you probably won’t have to pay back the first time home buyer tax credit. Click on the link to the IRS form 5405 at the end of the article.

  18. Jim says:

    I bought my home on october 08 thinking I was saveing $7500 with the so called taxe credit that just turned out to be a loan I will have to try to pay back in my retirement years with out a retirement pension what a a scam by our goverment .

  19. Jeff says:

    Hello,
    I purchased my home in April 2009, and claimed the $8000 on my 2008 taxes. I need to move in July 2011 for school. I don’t want to sell my place because I plan on returning to it after my studies are done, but I would like to rent it out so that it is not sitting empty while I am paying rent somewhere else. Do I have to repay the $8000 tax credit?

  20. Maggie says:

    we received the 2008 home owners credit of $7500.00. this year we had to file bankruptcy. do we have to repay the credit?

  21. Alice says:

    Hi my husband and i purchased our home in 2009. We are getting a divorce, and he is keeping the home in his name. Do we have to pay back the $8000.00 Tax credit?

  22. Wendy says:

    We purchased our home in 2008. My husband promptly lost his job 4 months later. 18 months later with out work, we were forced to sell our home. Does anyone know what our options are when it comes to repaying this?

  23. steph says:

    i received the credit via a purchase on land contract. I defaulted on the land contract and vacated the house in Jan 2011…do i have to repay the money? if i do not claim it will the IRS figure it out and come after me?

  24. Joni Rust says:

    Me and My Boyfriend bought our new house in 2009 in both of our names we each got the $4000.00 credit total of $8000 we are now spliting up and will have to sell the home. The homes prices have dropped bt about $20,000 If we are forced to sell for less do we still have to pay back the $8000.00. It has not been 3 yrs yet it will be 8-27-12..

    • Katherine says:

      do whatever you can to keep that home your primary residence for 36-months or yes you both will have to pay back the full amount filed on your tax returns…if you cant keep it the IRS will make you repay it over 15 years monthly or however …. you will have to repay it up to the amount of gain

  25. marlene omeara says:

    my hubby and me bought my own house ranch in 2001 frist time no improvement no fix furnace air central and sump pump and mold and we are deaf please help us how ??

  26. lincoln earhart says:

    My son is in the Military and got orders to move from the DC area to NC. He had used the $8,000 tax credit when he purchased his home almost 2 years ago. Will he have to repay the $8000 if he sells his house. What happens if he rents his house.

  27. jeff says:

    I purchased a house in 2009 and recieved the $8000. I had to move/sell for work. I read the exemption to paying it back and I see you either pay back the $8000 or the amount you gained from the sale, whichever is less. Now is theat gain amount before or after the real estate agent takes their cut? IAfter it is all said and done , after all fees, etcc. I am walking away with like $4000, will that be th eamoutn I pay back?

    Thanks,

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