25.21 Repayment of the First-Time Homebuyer Credit

The first-time homebuyer credit is no longer allowed. However, a credit claimed for a 2008 home purchase must be repaid in 15 installments, and repayment is generally accelerated if the home is sold or no longer used as a principal residence; see below for exceptions.

If you claimed a credit for a home bought in 2009-2011, you do not have to repay it if you continue to own it and use it as your principal residence for at least 36 months starting with the date of purchase. If within the 36-month period you sell the home, stop using it as your principal residence, or convert the entire home to rental or business property, repayment of the entire credit is required, unless one of the exceptions discussed below applies.

Note: For prior years, repayment of the credit was generally figured and reported on Form 5405 and then transferred to Form 1040 as an additional tax. However, when this book went to press, it was not clear if repayments for 2012 would be figured on Form 5405 or on a worksheet in the IRS instructions; see the Form 1040 instructions and the e-Supplement at jklasser.com .

Credit for home bought in 2008 must be repaid.

The 2008 credit for a home purchased after April 8, 2008 and before January 1, 2009 (Form 5405 for 2008) generally must be repaid over 15 years in 15 equal installment. Repayment began with the 2010 return. No interest is charged. For example, if you bought a qualifying home in September 2008 and you claimed the full $7,500 credit on your 2008 return, $500 (1/15 of $7,500) must be included as an additional tax for 2012 on Form 1040; the same repayment was required for 2010 and 2011.

The 15-year repayment rule assumes that you still owned the home and used it for all of 2012 as your principal residence. If you disposed of the home or changed your use of it in 2012, you generally have to repay the entire 2008 credit (not just 1/15) with your 2012 return.

However, there are exceptions. If you sold the home in 2012 to an unrelated party and there is a gain on the sale that is less than the credit you claimed, the repayment amount is limited to the gain; the excess of the credit over your gain does not have to be repaid. If there was a loss on a sale to an unrelated party, no repayment of the credit is required. Sales subject to these rules include foreclosure or repossession sales and in figuring gain or loss, basis of the residence is reduced by the credit.

If the home for which a 2008 credit was claimed was destroyed or condemned in 2012 and you acquired a new home or intend to within two years of the destruction or condemnation (18.19), you continue to repay the credit over the 15-year period that began with your 2010 return. If, as part of a divorce settlement, you transferred your home in 2012 to your ex-spouse (under the tax-free exchange rules in 6.7), your ex-spouse becomes responsible for repaying the credit over the 15-year period. You do not have to repay any part of the credit if you or your spouse were a member of the U.S. uniformed services or Foreign Service, or an employee of the intelligence community, and you had to sell your home or stop using it as your principal residence in 2012 because you received orders to serve on qualified official extended duty.

See the IRS Form 1040 instructions for further details.

Repayment of credit claimed for a home purchased after 2008.

As noted above, you do not have to repay the credit claimed for a home bought after 2008 if you own and use the home as your principal residence for at least 36 months.

However, if before the end of the 36-month period, you sold the home in 2012 (this includes a foreclosure or repossession sale), or you converted the entire home to business or rental use, or the home was destroyed or condemned, you have to repay the credit with your 2012 return unless you meet one of the exceptions discussed above for homes bought in 2008. Thus, if you sold the home in 2012 to an unrelated party, repayment of the credit is avoided if you had a loss, or limited if you had a gain that was less than the credit. The exceptions for replacing a condemned or destroyed home, transfers to a spouse, or serving on qualified official extended duty, also apply.

See the IRS Form 1040 instructions for further details.